Morning Mumble (via email): Afren Plc Suspension of Directors Pending Investigation

Morning, hopefully this works as an email update.

Afren's news Suspension of Directors Pending Investigation does not bode well for the company in the short-term until further clarity. With the RNS obviously raising serious concerns: The Board has no reason to believe that this will negatively affect the Company's stated financial and operational position, the publication of the Company's Half Year Results due on 4th August 2014 will be postponed." So having purchased equity recently (one of the few I hold long in equity with more recent purchases at 140-146), I have elected to opening positions pending fill @Circa 99/100.

Atb Fraser

Morning Mumble: A contribution from Leggie, International Arbitration (Bolivia)

Morning, whilst completing my blog and eating croissants, Leggie has come up with a company that is worth a closer look at. Both Leggie and myself have a position in this company already and does not constitute a buy recommendation. As per the normal common-sense rules, not do any posts for that matter. This has to be put in place to avoid idiots running of and claiming they were unaware.

My post is to follow in due course...re: Barclays, the turn around with a big shift in focus, plus AntoFa'ghastly (ANTO) who's results leave a lot to be desired. Rio's dire coal sale. Also continuing the theme of the cannibalisation of B&Q, we have Travis Perkins results, Travis Perkins PLC : Interim Results which in essence is akin the to LIDL/ALDO price perception to Sainsbury's or Tesco, and perhaps even Asda. Save for the ToolStation Loan notes debt was significantly reduced and net interest cover increasing significantly to 20 times+, this company is clearly proactive. I'll cover more in due course. 

Leggie's devling has produced his own view [Start]:

The main issue being that the best play re Bolivian nationalisations I have located happens to be a stock that isn't traded much at all, so its down to tranches and patience. Still, most other things line up for me, so let me know if you find anything Ive missed.

The company in question is/was Soam Silver (soam standing for South American), which was a fully owned sub of TriMetals Mining (TSX. TMI). Soam discovered a silver/indium deposit in Bolivia (named Malka Khota) and spent $16m over 4 years on the project, with a PEA in 3/11 showing a NPV of $704m at 5% discount, with an IRR of 37.7% based in silver at $18/oz and capex of $411m. The cash costs were v low ($3/oz) and there was a mixture of metals, with silver over 70%. The 181 page PEA is on the website, and a NPV of $1.5bn was quoted at silver at $25/oz as a headline, but the figure above is obviously nearer the case today.

http://www.soamsilver.com/malku-khota.asp

So far so good, they were busy working on their PFS when, hey ho, guess what, a media announcement is made on 10/7/12 that the project was to be nationalised, following swiftly on 1/8/12 by a supreme decree which confirmed the above. Five attempts to negotiate were ignored by the government between 8/12 and 2/13, and despite a meeting in 4/13 (v brief apparently) Soam Silver announced on 30/4/13 that it was going to take the case to UNCITRAL for recourse. The position re arb is held here and confirms that the position now is that a statement of claim will be submitted by 24/9/14 and that the court has set a date for hearing on merits as being in either 4/16 or 5/16. The court seems quite intent on getting procedural matters settled between now and then, but no doubt the Bolivian side will argue over every point in the meantime, looking at the interplay to date. More info re the arb case is here-

http://www.soamsilver.com/arbitration-update.asp

Tri Metals Mining have several assets they are developing but the good news for me (at least) is that they have split the company and have a secondary listing (TSX- TMI.B) which is purely interested in the arb case and which will get 85% of the net proceeds. This is positive for me as it simplifies the investment case.

They have also got an unnamed international party to third party fund the arb - Calunius or even Burford Capital, who knows but still a positive as they will have assessed before putting their money down, and hopefully the % take is reasonable and equitable. Given the RUR case, Im hoping its not Burford, but no clues Ive been able to locate in this respect.

The market cap of the secondary listing (TSX- TMI.B) is circa C$18m, which is around £10m and v close to the OXS mkt cap strangely enough. Volume is v low here and there is v little interest at present, with 2 years to go, its an ideal time for me before the claim goes in in 2 months (over $700m v v likely) which may stir some interest. Im long via a small inv but planning on a couple more invs over the next month.

Any comments are welcome. Good luck to all. Im not expecting a $700m payout, but given the mkt cap and the asset, I feel the risk/reward balance is right for me presently. [End]

Cheers for that Leggie, my comments will be in the reply

Will be back later Atb Fraser

Morning Mumble: Shorts, Savannah Petroleum & all that glitters is not just gold!

Good Morning, what a delight waking up to sun rising...Pets at Home (sinking) hitting all-time low's AO. (AO World), doing the same with obvious results. AO.'s lack of support is a knife catchers void currently. Taking the first of a few positions in Morrison's on the basis of the appointment, which acknowledges the severity of the situation. A well-timed and considered appointment, (note: I bet Andrew Higginson wrote his own ticket as well!) Andrew Higginson to become Chairman (MRW) in 2015.

Its hoped people were able to watch the dispatches programme on Supermarkets. Its nothing that was not already known but well put together, more importantly, it shows the changes ahead for retailers. Will endeavour to find parties a link in due course.

Nautical Petroleum is coming back, no not being spun out of Cairn but...Savannah Petroleum Intends to float on Aim. The Company appears to pushing the exploration, appraisal and anticipated eventual development and production of conventional oil deposits located in the R1/R2 PSC area. Now it was my understanding that China National Petroleum Corporation (CNPC) had the rights to this Agadem Field on an exclusive basis (awarded 7 years ago). So whilst digging away in the press releases for the Niger Government, I found this: Press release (Niger Government) Ministers Meeting 06th June 2014 Scrolling down to page 3 (see below highlighted in red),

III. AU TITRE DU MINISTERE DE L’ENERGIE ET DU PETROLE.

Le Conseil des Ministres a examiné et adopté le Projet de décret portant approbation du Contrat de Partage de Production (CPP) entre la République du Niger et la société Savannah Petroleum, relatif au bloc R1&R2.

Ces deux (2) blocs représentent une portion de 50 % du bloc d’Agadem, objet de l’autorisation exclusive de recherche pour hydrocarbures accordée en 2007 à la société CNPC-NP-SA.

For those of us without schoolboy French:

III. UNDER THE MINISTRY OF ENERGY AND OIL.

The Council of Ministers considered and adopted the Draft Decree approval of the Production Sharing Contract (PSC) between the Republic of Niger and Savannah Petroleum Company, on the block

R1 & R2.

These two (2) blocks represent a proportion of 50% of Agadem block, subject to the exclusive exploration license for hydrocarbons granted in 2007 to the company CNPC-NP-SA.

I’ve highlighted the item in red that contradicts my thinking that the CNPC already has the rights. Perhaps CNPC have consented to this move, but more so, what happens to their current operations/exploration activities. Perhaps I’ve missed that the CNPC/Savannah Petroleum have done a deal? However, check through the Government announcements for Niger, there’s no such approval for changes or ratification to a deal. One shall wait and see if there's more clarity. Should this item not be disclosed as there is a potential conflict. Are CNPC aware of the award, albeit they will be with noise Savannah Petroleum's intention to join AIM. Perhaps Strand Hanson will be able to clarify this as the NOMAD, whom I shall call in due course. 

Back to the news, Gem Diamonds comes in a trooper today with a trading update which is very positive indeed. For those seeing that all that glitters in not gold but diamonds, then this bodes well. I commented on the fnancial changes in the Diamond Market (contraction of financing & Anglo American's (Read as De Beers) new sales contracts which bodes well for greater stability in the market. 

I'll let the highlights do the talking:

Letšeng delivers exceptional performance

·       80% increase in Letšeng's revenue*to US$ 147.8 million compared to H1 2013

·       29% increase to 54 678 in carats recovered compared to H1 2013.

·       14% increase to 53 799 in carats sold* in the first five tenders of 2014, compared to H1 2013.

·       58% increase in average value per carat of US$ 2 747* achieved for the first five tenders of 2014, compared to H1 2013.

·       37 rough diamonds achieved a value in excess of US$ 1.0 million each.

·       77 rough diamonds achieved a value in excess of US$ 20 000 per carat.

·       5 rough diamonds achieved a value in excess of US$ 60 000 per carat.

·       A total of 311 rough diamonds greater than 10.8 carats in size were sold.

·       Three exceptional quality +100 carat diamonds - a 162.02 carat, a 161.31 carat and a 132.55 carat, were sold for US$ 11.1 million, US$ 2.4 million and US$ 7.5 million, respectively.

·       Tonnes of ore treated up 6% on H1 2013.

The downside is there is still no clarity on the size of any potential dividend to enable a fair assessment of value, with cash of US$ 114 million cash as at 30 June 2014 (approx £67m) the market may get over excited at the potential of 36 pence in dividends. The company has certainly turned a corner…With a debt facility of, 390 Million Maloti (don’t get too excited) its roughly $36M/£21M (approx), there’s head room to reward the patient investor.

With Ghaghoo;s first sale of diamonds scheduled before the year end there’s potential upside. To quote: “The first diamonds produced during the commissioning of the plant have, as anticipated, been of a significantly higher quality and average size than those mined during the exploration phase. A 20 carat and two 10 carat diamonds have been recovered from the first 2 400 carats recovered as at end of June 2014. This compares to the largest diamond recovered in the exploration sampling of 7 carats. During the development of the production level there has been a greater quantity of water encountered than indicated by the exploration drilling. Steps have been taken to deal with this and it is not anticipated that there will be any impact on the planned production targets for 2014.”

One expects GEMD to make further highs today on the back of this update…the risk being more clarity on the dividend policy and diamond prices…albeit with greater stability as the leverage has been reduced in the sector to stop it over cooking on speculation. It would appear the play today is short Petra Diamonds whom appears overvalued based on GEMD’s update. Petra’s trading update (28th July 2014) yesterday wasn’t the most positive. When considering the potential of GEMD…

One will watch with interest the impact of the Ebola Virus on various producers, the News Agencies appear much faster than the AIM companies whom should be informing us.

Atb Fraser

Awaiting the news of the Burford Bonds before discussion!

Morning mumble: Blurry-eyed but limited news...and another IPO'(oh)

Very limited news in the Market, Focus on delivery as Tongon deals with challenges Randgold announces today...which one wonders why they're informing us so late in the date. Perhaps a "if we don't get these permits we won't be able to employ people" type conversation needs to happen with the Government. Nevermind the technical issues and ground lost, targets and warnings that are now coming out. The Gold price may support Randgold here when normally the market would punish it. 

Its with pleasure I welcome ULS Technology plc & First day of dealings. For myself I am assessing the stock as a short, with a market cap or near £26M based on revenues of £16M and a margin of 18%, it doesn't bode well for funding when adding in the additional costs etc...Stock is being sold (18,713,750 shares) (a warning sign for me), and a bit of cash raised (11,536,250 new ordinary shares) raising £4,614,500 before expenses. The company has around £1.85M of debt being repaid and after the costs of the IPO, fund raising and repaying debt, the company will have around £2.2M. This company has been going near 11 years, albeit its form and earnings are only discussed for the past 4 years. All eyes will certainly be on the "progressive" dividend model. 

For those wanting to find out more about the company, a good place to start is here: Econveyancer.com. Perhaps the company would be wise to incorporate an Investor Relations section on their website. This should have been done prior to the first day of dealing. The ulsgroup.co.uk (Investor Relations & PR Email Address) website merely directs interested parties to the econveyancer website. However if you do desire anything there is a Media / Investor Relations enquiry email address.

This company has a lot to do in the Market and the recognised comparison brands are already designing formats for conveyancing comparisons. Yes the model appears to be via the intermediary markets approach, but surely one should recognise the brand? A quick google for interested parties will show, using the phrase “(compare conveyancing prices)”  you’ll note where the company's listed.

The company purport to have 4.5% market share of the market which is allegedly £1.6B. So by operating in this market and being involved in £72M of referrals the company had a revenue of £16.2M of which 18% was EBITDA, or £2.916 and a market cap of 9 times this? One shall await their results, but it appears like an also ran…To me something doesn’t stack up…perhaps I’m not an American that’s able to understand the model? or that I'm clearly missing the purpose, model or business strategy.

What bugs me is the comparison model extends itself to the user comparing the prices to have faith in the process? Yet this is via an intermediary approach? So people, if you want a comparison, you’ll have to take someone else’s word for it, or the limited offerings in place. This will also be conducted by a model you’ve not heard or, its PR and Brand Awareness is lacking. I shall be waiting in the wings! Suffice to say I’m not currently very positive on this company. Until such time as it presents its previous accounts, prospectus and the like…I’m remaining negative without a position (currently).

Atb Fraser

Morning Mumble: Lonmin (really) & Anglo American (AAL) & my dog BBY.

This is definitely a summer to remember in terms of weather and market stupidity with IPO's priced above viability...I'll perhaps save that for a separate post pending time etc...

LMI's 3rd Quarter Production Report & IMS is rather simple to run through, net cash is Nil, but they have banking facilities, they expect to have a cash surplus by quarter four of FY2014 but strangely only be at 80% of normal monthly production. Yes that's right, LMI are such a powerful and cash generative company they'll have surplus cash at 80% of the company annualised production. We'll ignore the fact of labour costs up 12%, energy costs going up near 11% and PGM prices around $1465-1480 an ounce with slack in the market. 

As most are predicting there is an increasing risk of a further placing to save the company. Personally, after the last rescue placing in 2012 the righting (sorry I know) is on the wall. By my estimates, pending the banks tolerances, this is likely to be April 2015 "to assist the company's balance sheet." So the Market irrationally rewards LMI with a morning uptick, wonders will never cease. one shall await the next update before taking a position. The time to close LMI was amazingly, at the end of the strike...

Anglo American, yesterday we saw news of them putting their Manganese Projects with BLT up for sale. This is in addition to Anglo May Announce Nine More Assets for Sale says Standard Bank. All obvious but perhaps more relevant to shareholders will be any price achieved. It doesn't bode well for a company when you realise you've got some "lower" value assets to sell which are priced significantly higher on your books. "Driving Value" (the names they think of, what next "back to basics making decent returns"), appears in their eyes to be working, they have their work cut out with the asset sales. The Coal division seems very well managed indeed, yes improvements across the board, allowing some for a significant decline in coal prices. 

Minas Rio is on track and having secured long-term agreements for the majority of Minas Rio's forecasted 26 million tons of iron ore production, its now a question of what price. Saying that with yet more increases into the market, AAL's targeted returns are now coming in to question (+15). End of the year is the date to watch....perhaps this time next year one will be able to assess the true and factual potential of Minas Rio, which has allegedly come in on budget.

Save for the potential bad news in iron ore and ignoring the debt targets, AAL has come in significant better that most envisaged. Perhaps its time to revisit the viability of an investment with gearing around 23% and the potential turnaround now in full swing, rather than just being spoken about. It was pleasing to see De Beers coming in very well indeed, even above the most bullish of estimates. The new rough diamond sales contracts with more rigorous financial and governance requirements in order to be eligible for supply should already be priced into the market. Most lenders have already required the same of the market for near 6 months, reducing the levels of financing, so should bode well for stability in the market. De Beers, will be set to benefit, along with most AIM Diamond miners/explorers whom will significantly benefit from stability in terms of looking at borrowings and financing new production/developments. Currently, with my target price of 1385, I should perhaps review this figure in light of today's announcement. 

Minco appears to be missing the point re: Woodstock, as I covered awhile back. The Technical Report on its 100% owned Woodstock Manganese Property, New Brunswick, Canada still doesn't give me any confidence to part with some cash to invest...One would be wise to look at 2% NSR royalty on the Curraghinalt gold property in Northern Ireland which is being explored by Dalradian Resources Inc. (TSX-"DNA"). Assuming fair value and production. This perhaps could be sold off to give Minco some cash, say £7M at fire sale prices...to spend on their other wonderful assets. 

RBS was rather predictable/amusing...Preliminary Interim Results 2014 given the American results and better still, the litigation and conduct costs will have more clarity, then the bank can get back to profits rather than transition of wealth from the private to public sector. 

Finally a dog of mine for which I have been pleasingly short on for some time now (without Checking around Jan/Feb), Balfour Beatty (BBY) has found a date! Who would have thought it, very well timed by but not without risks. Possible merger between Balfour Beatty plc ("Balfour Beatty") and Carillion plc ("Carillion") Possible Merger, this has some significant cost savings and over lap of costs. It would be no surprise if Aecom (NYSE:ACM) came out of the closet after a more definitive statement by BBY & CLLN. 

Atb Fraser

Morning Mumble (Side Thought): Kingfisher Plc, was it really unpredictable

For those following ML, you'll note my commentary regarding Kingfisher (KGF) 3 months ago was spot on! It wasn't hard to work out that one cannot maintain a completely bullish environment. The KGF Q2 pre-close update for the 10 weeks to 12 July 2014 wasn't exactly endearing to the market. 

One has to question whether Screwfix is impacting on the higher margin sales via B&Q, in essence competition is reducing the margin between the group, which ironically would almost exactly explain the decline in LFL sales compared to Screwfixes increases. One wonders whether both models are sustainable with the expectation of "higher profit" margins within their "self-help" strategy.

Atb Fraser

Disc: Still short from Marh but perhaps not for long.

Morning Mumble: Echoes but well down the food chain & Indonesia (there is hope re: Freeport) & Facebook, could it be duplication of numbers?

It was interesting today, I was just getting off the phone with a trader about the gossip of today when we had been discussing BG Group. Then in my inbox, Malcy is well ahead on the news with the sale of $1b, albeit I dare say my "gossip" has had VAT added down the food chain to me at the bottom, as my figure is $1.25B. So kudos to Malcy for being ahead of the wave…

For some years I have been holding Sylvania Platinum (SLP), yes I have been short as its wise to protect your position. Its one of my largest equity positions so please remember that as a bias, albeit its fair to say I do not hold back even if a holder; this position as a % of portfolio has been diluted from near 14% down to around 0.5% of the entire. Predominantly as I shifted from listening to crap about the positives of companies on AIM and being significantly short across the market (generally 80% on average.)

SLP’s news is positive today, SLP Q4 Results. I’d not go as far to state ‘very or extremely’ or encouraging. Notwithstanding the Strikes in RSA (Republic of South Africa), it’s been a positive, however nothing should be claimed as a result of management organisation as the tailings were predominantly fed from mines not affected to the same degree as the majors (AAL et al).

In comparison to the previous quarter production was up 17% to a record 15,435 ounces (Q3: 13,185 ounces) the fifth consecutive quarter of continuous growth for the Company's operations (albeit there has been a decline in the targets consistently for near 3 years.).

One would have some cheer in reading that the EBITDA increased 17% to $4.66 million for the SDO (Q3: $3.98 million), however if one strips out Group Level costs there does not remain much benefit for shareholders. The Group level costs and functions / roles of certain parties questions the needs for these costs, which if removed would promote the possibility of a quarterly in arrears dividend to shareholders.

The bottom line increase in cash, up 10% to $5.3 million as at 30 June 2014 (Q3: $4.8 million);even after the ZAR20 million (approximately $1.9 million) for the Grasvally prospecting right in the quarter is positive. Of significance in terms of Corporate Governance would be to question whom owned Grazvally prior to the acquisition, was this a related party or significant shareholder transaction. The licenses / prospects used to be owned by SamanCor,, however there is no disclosure.

You could argue it’s the bottom for SLP, with a bit of luck through the Strikes in RSA, SLP could be on the turn. For myself, I’m not sure why I hold at these levels but everyone loves a dog in their portfolio.

Following on from yesterday’s commentary on the Indonesian situation, one can take some hope from Freeport McMoRan (FCX-NYSE) in their Reports Second-Quarter and Six-Month 2014 Results whom “are encouraged by our discussions with the Indonesian government toward reaching a near-term agreement to enable resumption of PT Freeport Indonesia’s copper concentrate exports.” What’s good for one is good for them all. (Please see page 5 of their announcement regarding their MoU.) The restrictions have clearly had some impact on FCX, with the deferral of significant shipments of copper and gold. It could soon become exciting for commodity markets!

Its best to ignore the Aquarius Platinum (AQP) update, having been significantly short on the company, I don’t rate the assets. Those being long clearly like to gamble…beyond what could be said as “higher risk exposure.”

For Leggie, United Carpets Preliminary Results for the year ended 31 March 2014 shows a glimmer of hope…obviously the capital reorganisation bodes well for the company (note my saracasm).

"Shocker for Facebook" as well Reports Second Quarter 2014 Results...having been trading it for a limited time and amateurish research by me, I'm calling it right, however wouldn't want to be long any more! It was an interesting discussion about "duplicate profiles" to enable gaming on Facebook which would correspond with the increase in the likes of Candy Crush et al. Apparently parties are creating 2-3-4-5 profiles to enable themselves to obtain 'free' lives rather than paying for them. Similar to other games that entice parties to invite their friends. When this bubble pops will the advertiser realise their market is reducing?

Atb Fraser

Morning Mumble: Indonesia's potential good news for Miners (the long haul), BLT & the black stuff...

Whilst reading the papers, FT Five challenges for Indonesia president-elect Joko Widodo By Ben Bland in Jakarta  it was no surprise that Joko (known as Jokowi) has his work cut out. The ill-thought-out policies including the unprocessed ore of his predecessor haven't exactly instilled charm in his country folk. Prabowo Subianto will obviously have to scream about election fraud etc...however with near 6% margin the result is unlikely to change according to the people that know this better! See: BBC Indonesia election: Prabowo Subianto to challenge result.

What Indonesia need is Foreign investment and this is going to come with a common-sense price attached. It’ll be slow, due to the legalities regarding the election result as the Ex-General (Prabowo Subianto) either eats humble pie or does a sour grapes approach to the election being second.

This bodes well for Churchill Mining et al, including Freeport and Newmont (Specifically their subsidiary Newmont Nusa Tenggara part owned by Newmont, Sumitomo and an Indonesian partner) whom recently announced they wished to challenge the policy.  The Batu Hijau mine (Cooper + credits for gold/silver) employed near 3.3K people, 90%+ of which were sent home last month due to the issues around being unable to export unprocessed ore (Copper).

As mentioned here awhile back, its likely the Government will initiate a form of Smelter Bond scheme for miners/producers which will enable the processing of of the ores at a later date. The Government for smaller companies may even be considering a Smelter Royalty Bond Scheme for the smaller producers that are unable to afford the one off costs.  The pain, 7 months in, is now being felt on the ground, there’s around 150 firms impacted by the ban which doesn’t bode well for employment as more producers/miners lay off. 

One key element is how Jokowi deals with the Sukarnoputri family connections and the older generations will be praying Indonesia does not return to such blatant corruption and the sectarian violence. Jokowi’s task won’t be easy, just a quick look at the fuel subsidies issues alone doesn’t bode well for his popularity. Expect news of talks fairly early on, as the Ores ban needs resolving to show a willing/respect for Foreign Investors, which Jokowi will need to tap for around $50b in his first year in tenure (30% of Government expenditure approx.). Patience required, but perhaps a wry smile in the Churchill Mining offices...

On to the realities of BLT Billiton (BLT), BLT Operational Review for the Year Ended 30 June 2014, it reads as unexciting with promises of tomorrow. Despite strong performance, with Rio increasing, BLT have no choice but to aim for 245 Mt Iron Ore Target from the Pilbara in the 2015 financial year. Iron Ore is set for a Mexican stand off, with increasing supplies to market well above even the most bullish demand forecasts, the price is set for one direction. The Lower quality Co’s have a real problem in negotiating decent deals, similar to London Mining’s most recent update showed it was possible to improve margins and AMI (assuming they get round to improving their concentrator) are focusing on quality. Petroleum is where I see the growth this is mirrored in their results, with an emphasis on their highest return acreage. BLT need to get in gear and acquire BG Group whilst its cheap, the update today clearly shows they can afford the deal. So with expanding production in the short-term, what better time to add some long-end dated items to the shelf for tomorrow?

On the coal front, it would be wise to follow the NCA Project deal and whether Glencore increase their stake. Will this be another contrarian deal by GLEN, whom only recently bought Rio’s Clermont share with Sumitomo Corp for just over $1b. Strangely Sumitomo Corp’s actions are contradictory, with them wanting to sell their 10% share in addition to Itochu Corp wanting shot of their 35% in the Aussie NCA. With JPM (Representing Itochu) & Rothchild’s (Sumitomo) brought in to sell the stakes, who will be a buyer. Its looking like it’s “only GLEN” in the running.” NCA has struggled in the recent coal climate. Will it be en par with the Clermont deal, I suspect not, with anything above $400M for 45% being be a surprise with the Newlands Project extension already being wound down nevermind other producers closing, over-supply in Asia and $70-80/t pricing currently, it’s unlikely to be enticing for many. One can’t ignore the carbon taxes and changes on profit taxation in Australia on the plus side.

One should “put out a cheer for Serabi Holders today”, with the Declaration of commercial production at Palito and second quarter operations update, with the company valued at near £40M, the grades bode well for an all in cost of around $750. Albeit its nothing to get excited about for me. 

Atb Fraser

Morning Mumble: Any old Iron...the Empire of the Rising Sun, Limited Financing Strikes Back!

Good Morning, this Monday was harder to come by than normal due to travelling and holidays. The idleness known as late nights and late mornings was a shock to the system.

The predictable happened last week and over the weekend for Chinese Iron Ore Futures that were in decline, with near 5% drop (net) on prices. There's now a modest over supply in the market coupled with a significant contraction in financing as Banks and Lenders rush to check on their supplies. One would have assumed China would create a database for the lending/bonded lending that occurs, to avoid such calamities as multiple lending on the same ore. The current system bodes well for those wishing to abuse the market via leverage. 

Reuters et al would have you believe that its the larger mills in China and traders taking advantage of the price increases and flipping their stock for a quick profit. There's no support for the supply due to restrictions in financing that were not in place and the Mills 'have to' improve their balance sheets. Ironically, it's had a knock on to food prices will follow as liquidity contracts which bodes well for Soya shorts, also aided with the defaults by major Chinese importers there's "some cheap Soya hitting the national Markets Delboy." With Argentina having a bumper harvest and the debt issues, I don't see much in the way of controlled selling into the Market as farmers have more surplus than what they trade in their own country, significantly more.

It makes me wonder why Anglo are even bothering to buy Quartzhill off Jubilee Platinum (Quarterly Ops & Finance Update). Reading through the update today Anglo American Platinum Limited interim results 2014. “Anglo American will report an underlying loss in respect of Anglo American Platinum Limited of $1 million for the six months ended 30 June 2014, which takes into account certain adjustments.” Does anyone want the keys? Jubilee appears to be benefitting more from the Eskom Power issues than Platinum, is there a name change in the offing? Jubilee Energy? With Smelters for hire?

Limited time so cannot discuss the Stratex International (STI) acquisition or the implications for GRL (Goldstone Resources Limited) Strategic Investment in West African Gold Explorer. Disappointment for Tullow (drilling and tax) and Ithaca's impact of Tullow's duster!

Atb Fraser

Morning Mumble: Iron Ore (From Kumba via Pilbara to Marampa) & LGO's placing...and does Mother Care?! (Poor I know).

For those trading Anglo American (AAL), short is the wisdom of the day! AAL Q2 Production Report validates holding Rio Tinto over AAL. The coal production increases does not bode well for the market. The update for me is dull (read as flat), one would put some cheer into the Nickel production but reading through, appears there’s a planned rebuild of the furnaces commencing in the second half of the year (Gulp). Platinum was pretty much as expected, perhaps AAL would be wise to buy a AIM diamond miner pre-development and get some decent low cost production up and running sharpish to contribute to the bottom line.

Overview

	Q2 2014	Q2 2013	% vs. Q2 2013	H1 2014	H1 2013	% vs. H1 2013
Iron ore (Mt)	11.5	11.3	2%	22.8	21.6	5%
Export metallurgical coal (Mt)	4.8	4.4	10%	10.9	9.0	21%
Export thermal coal (Mt)	8.1	8.5	(5)%	16.0	15.5	4%
Copper (t)(1)	194,400	183,000	6%	396,400	353,300	12%
Nickel (t)(2)	10,600	8,500	25%	19,800	14,700	35%
Platinum (equivalent refined) (koz)(3)	358	594	(40)%	715	1,177	(39)%
Diamonds (Mct)(4)	8.5	7.9	7%	16.0	14.3	12%

In comparison yesterday’s update from Rio was good news albeit bad in terms of increasing production into an over supplied market. Rio’s gauntlet firmly laid down to the lower grade producers, even allowing for a 15% dip in Iron Ore Prices. In doing so, it ensures there costs per tonne achieve a nice rate of return. The entitled Rio Tinto delivers very strong first half production update is somewhat punchy.

The results ensure (my view) that Turquoise Hill Resources (TRQ) will be no more soon enough, as Oyu Tolgoi ramps up. With the recruitment by AMEC (mentioned here awhile back ) progressing one expects there to be some announcement about the Mongolian Tax Authority claiming unpaid taxes etc. by year end to establish a mutually beneficial plan. The benefits for TRQ are they raised $2.4 billion in January 2014 and repaid all Rio’s funding facilities the price is firmly in the hands of TRQ holders.

Kenmare might be relieved to see RIO have delayed their Titanium dioxide refurbishment of one of the nine furnaces. Albeit please note, demand is soft…perhaps KMR are running back to the table with Iluka Resources as 20p might be a tad too much when you weight KMR’s debt as well.

Rio’s message with ramp up, is sell higher cost lower quality, buy Rio et al of the Elite, with expansion set to 360m/t, one would be wise to avoid too much exposure to the longs on iron ore.

London Mining (LOND’s) Q2 production today was better than I expected. LOND have realised grade is now the key, with a 7% improvement helping their prices to USD86/dmt as a result of improved grade, lower freight and hedging benefits. The key to LOND is their “potential” strategic partner whereby they seem confident to complete “before” end of 2014.  A pat on the back for the freight costs coming down near 12% to $30/wmt. On these figures, expansion is the key here, including perhaps some j/v with a neighbour on a concentrator?

LGO’s (Leni Oil & Gas) placing today bodes well for the share price raising £7m but why not use the debt facility. Likewise, with raising £7m, it questions the funding strategy of the company now. On the one hand it was reserves based lending (RBL), now it’s to the market. Are LGO believing that there’s further value in the share price? If so, why not use the RBL better still “use some of the cash they raised to appraise the acquisition” in addition to the RBL. This, if “one assumes” they hadn’t raised the £1m to pay MOG, would mean they only had to borrow around $3m and fund the other items in debt as well. Clear as mud! Thus having had my monies, LGO is now on my follow list for curiosity rather than any active trading.

Finally, Mothercare (MTC) update today has wiped out the gains. With such little potential the small potential premium on MTC to current SP made it unviable; what were parties holding out for? Will it go/won’t it? With a trading statement like today, the risks are increased of being stuck in a stock which is overpriced in the absence of any takeover. Were MTC wise to reject £3…I think not!

Atb Fraser

Morning Mumble: Obviously Chinese et Al (the Samaritans Addition)

So the obvious in yesterday's news was China increasing fiscal spending with the title: China's fiscal revenue growth modest, expenditure surges. Thankfully, relaxing with Wine and Food, I didn’t run to exert my views upon the modest masses of my blog, I elected to consolidate my thought process. Unusually, this is a weighty blog today, as its necessary.

What was obvious was the assistance the Chinese Government has been forced to give to the Real Estate/Construction sectors, with monies spent on social housing increasing massively to 201.9 Billion Yuan for those with only the normal about of toes, that's around $32.51 billion or £19.51B. An increase of what looks like 29% on the previous comparative spending period. 

What the press have yet again missed is the earlier announcement only in Chinese (yes I spend my time in those pages as well) whereby Real Estate Transaction Taxation Revenues are down near 39% between January and June 2014. I wouldn't call it an exclusive, more reading the proper items rather than headlining. So Chinese Taxation Revenue is up around 8.5% which would account for the increase Fiscal Spending. More importantly, for China they're noting an increase in the decline of taxation revenues across the board, with the trend increasing from May onwards, albeit saved by the advancement of stimulus by a massive 30% in June.

Now the Chinese VAT revenues grew fastest in the most obvious spending areas, Transportation and modern services (IT et al) VAT revenue where it grew significantly, an increase of 187% and 88.9%, respectively. No surprises here for the Sherlock’s amongst us whom clearly realised China was adamant on Transport projects and development funds for new/modern services. However, what was unsurprising was….In terms of industries, in 19 major industries, general VAT revenue increased slightly, but the sharp decline in individual industries; Among them, coal, steel billets, wine, oil industry, VAT revenues fell 27.8%, 18%, 12.3%, 11.6%. The stimulus amazingly is equal to the loss in revenues from the above declining taxation revenue sectors. In essence, spending on other items, Housing, Transport albeit focused on a bias to Urban Development, with the Rural development being a poor cousin.

Apologies for the weightiness of the above, but what I’m trying to get at is, with the sectors declining that I have “been banging on about” save for Wine, which I drink sometimes to excess, this does not support the commodity prices at all. The analysis of creating stability in China is ironically also “on the basis” of China increasing (read as bringing forward capital projects/investments) which avoided the slump that was continuing from the first quarter of 2014. So for the leveraged fears, with the Local Governments (LGs) of China have been taking the burden of debt by following the Chinese Central Government Policy, one won’t be surprised to read significant increases in LG debt in December 2014.

The end of 2013 saw an unsurprising increase in LG debt, to around 17.7 trillion Yuan ($2.85tn), up near 70% on 2012. Nothing to worry about in terms of comparison to Japan and the like for affordability, assuming there was not between 20-40% wastage. This year has already seen an increase in spending by LG’s by a further 30% on the previous year. Unsurprisingly, LG spending/borrowing increased as the ‘economy’ slowed. LG debt is likely to come in at around 25.1 trillion Yuan (just over $4 trillion) for the full year. 

If this is the case, with revenues increasing at a more modest rates, one questions when the Government has to consolidate not only the LG debt but the economy. It’s now looking likely that the Growth is now ONLY achievable by yet further stimulus. This is likely to mean additional stimulus as well as bringing forward items already planned. China needs to “condition” the world to a slower rate of Growth. Cutting the slack and waste out, 4.2% looks more likely, albeit I doubt the Global Analysts will like this. So for commodities globally and expansion in to Africa, it doesn’t bode as well in the short and certainly not the mid-term.

Bibliography: 

China June fiscal spending jumps 26.1 percent year on year (Reuters)

Analysisof tax revenues in the first half 2014 (in Chinese)

China's fiscal revenue growth modest, expenditure surges (CNTV)

Ministry of Finance Chinese Searches about Growth.

Chinese Ministry of Finance (MoF) Traditional Chinese) (Non-English Site)

Strengthen fiscal expenditure budget execution management actively revitalize precipitation funds (inc Agricultural Spending).

LocalGovernment Debt (BBC)

Now on to the realities of the market…sheesh even I need a coffee. Try typing and thinking about that crap whilst trading.

My emails have been banging on about Sound Oil (SOU) for which there appears to be a significant change in prospects for the company. Allowing for time, I’ll try and gain more of a view over the weekend. There announcement today is positive for SOU on their Santa Maria Goretti ("SMG") gas prospect albeit it does feel about the money.

Caledonia Mining Crp Q2 2014 Production Update & Revised 2014 Guidance update  comes as no surprises and their guidance of 45K ounces looks likely to be missed as well, one should be wise to price in 43K ounces for the year. CMCL have had a nice appreciation in their SP recently, so expect some knee-jerking in the SP. The company is one of my favoured purely on dividend.  

Weatherly International’s Quarterly Update is a positive for the company dogged by various issues. With the figures and production costs looking to improve, I’d envisage a cash cost of sub $2.25/lb for the 2^nd Quarter of WTI’s financial year (albeit the end of the quarter). One can but hope, at the price, it’s certainly a punt. The company is funded through to first copper, which reduces some of the risks of the past, albeit it’s likely another £1m is needed surely not below 4 pence.

Rumour of the day is Mothercare have another suitor at 315 pence, this would not bode well for those still short on Mothercare, the shorts should have been closed on the results. Alas, this is not hindsight but common-sense.

Parties will note my PLUS500 short, the trading update (1st July)  did little to stem the flow of sellers albeit for myself, despite having a target price of 185 pence, the market may not, so am closing positions as it drops to lock in that ‘thing’ called profit.

Atb Fraser

Morning Mumble: the rise of the yellow stuff &...

If parties think back to the trade a few weeks back of near $3B in NY on gold, you'll note the pricing since with a consistent support and little arbitrage ability between the US & Asia. The likely tapering of QE within 3 months is providing some security to the gold bugs, with the continued pressures in the economy, one would be wise to consider greater exposure to gold. With a quick estimate that I now hold 1.5% of portfolio in gol,d time will tell if this is a shrewd move. The motivation was the safety investors need and demand for gold starting to increase. China's issues will promote the return to gold rather than the "silly" yields previously tempting investors including Coal Bonds etc...just have a look at the global industry of coal including the debt of Chinese coal companies. 

Speaking of which, Columbian coalworkers are looking at another strike. Mechanics at Colombia coal mines strike, could hit output is a ruse as most workers cannot afford a protracted strike due to the dire pay they already receive. People would be wise not to get excited about the coal price escalating with the over supply and various other issues including the pressure on pension companies not to hold coal stocks.

These Eco-warriors need to get a life, when an eco-warrior comes to me and informs me that they've not got a mobile phone and not got a flat screen TV etc...because of the massive ecological issues that the supply of metals/materials causes just in making their "favourite" items I'll perhaps listen. Then again, the benefits warrior's I observed in West-Sussex recently, whereby they've "cleverly" justified not working to protect the planet. Perhaps working and paying taxes would have more benefit to the world/country? 

With gold, save for a few companies that should be rated, I was thinking about Aureus Mining and today they had further confirmation of good news/good asset. However, I cannot motivate myself to buy, even with their recent fundraising at a premium to the current SP. The market is penalising companies because so many lost money previously. Today's AUE announcement on the Ndablama drilling is positive, ticking all the boxes but...what does the market do? Rewards the company with?! I'll perhaps get excited post the NI 43-101 Resource Estimate in Q4 14. Until then, I'll continue to monitor (with interest of a long). 

Today's news on Premier Oil (PMO) is exactly what the company / holders needed to stop the rot in the SP. Production well ahead, expect some revisions even on the sell side. PMO is a long-termers dream, pending time I will review in more depth once I've spoken with Indian Jones whom is allegedly work on something of interest. Surely not LGO?

There was some excitement in-light of the Shaft (SHFT) update today, its fair to say if one is holding this stock they can describe their investment by the addition of "ed" to the end of the company's EPIC.  This company's making or position is partially a result of being focused on certain areas/countries and the dire state of mining margins. I will save commenting on the issues regarding receivables and how to improve this post any draconian financing plan that doesn't look likely to leave much for many current holders. Suffice to say, save for some pillock in May 2012 sending me a disgusting email about what the "hell do I know about the industry" after my comments on ML, I still rate the company as a sell to ZERO. 

More later perhaps, including Cairn whom a friend has been working on the reasoning for the positive moves. Apologies for the lack of comms D, been busy Holidaying but keep them coming I'll get round to it in due course.

Food for thought for people is Petroneft (+), Mwana (+),  Minco (-) with a PEA out today on Woodstock Manganese Project  which assumes an IRR which isn't "too shabby" until those better informed realise it's how much above the current prices for the last 2+ years at an average of albeit  the DJ European Minor Metals shows prices nearer $1/lb for China delivery which is still below the PEA assumptions by 15% as a minimum as its FOB pricing. With such a imbalance in the realities would people be an investor save for some better news on other projects such as Buchans and North Pennine.

Atb Fraser

Morning Mumble: Victoria Oil & Gas, (e)Citement & Centamin Egypt (CEY), PVR

Today's update by Victoria Oil & Gas (VOG) on the Gas Supply & Operations Update. It never ceases to amaze me why there are such delays and why they aren't pointed out immediately. So VOG are producing 4 scuffs (mmscf/d) a day. Its better than I envisaged, it's not where they were meant to be, depending on which forecasts/target's you read. VOG, have now had experience of operating in Cameroon for how long? Yet there appears to be an incapability to forecast an accurate level of production, parts or activity.

For the company it's a positive they've contracted the pipe laying and trenching out on a fixed priced contract. It would be wise of the company to monitor the quality of this work as its well-known in certain countries to mean quality/workmanship is at the lower end of achievement levels. If there is an issue with the work at a later date, there will only be certain people to blame if QA isn't part of the contract/due diligence. Ian can regale people with his "fixed priced" house build a few years back, which was "quality second to none!"

Hopefully parties can feel my despondence with the management here, history has demonstrated their activities/decisions based on their achievements. The Wouri River crossing is delayed with commissioning and engineers not likely to start until "next" week. The rest of the RNS is "about evaluating this, exploring that and considering this. The disappointment for VOG is that it strangely sounds like the past. 

VOG could learn a thing or two about Investor Relations, for which they clearly haven't learnt from the past. If they do wish to contact me to discuss this, I'll endeavour to be chirpy and upbeat! However from a financial perspective, save for any extraordinary costs, VOG are now near as damn it at break-even for cashflow by my calculations. For those wondering why I hold, sometimes the assets are better than the management. The company still has a lot to learn about the market and perhaps if VOG get an experienced AIM'er involved they'd actually benefit. So, for the time being I continue to hold, how the market takes today's news is anyone's guess, it's a positive but muted RNS's with significant amounts of jam, its more than likely to tank as parties realise VOG is further away than they realised (again).

In the interest of balance, and unusal for me, the video for VOG which doesn't put the main issues to VOG that have caused the slide in the SP and the 'error's todate. Save of course for mentioning they have been over-confident.



 

Centamin Egypt Q2 Preliminary Production Results come in very positive. Egypt is going through a period of change and as such, its unlikely for there to be any subsidies and a "greater" commercial market for operations. The benefit for holders (excluding the geopolitical issues) is CEY is very profitable even allowing for no subsidies. 

CEY, assuming parties know that NH4NO3 (Ammonium Nitrate) can be used as an explosive and not to fertilise Sukari, are applying/discussing with the Government to increase the use of NH4NO3 to expand open pit mining. 

With the Stage 4 plant expansion on track, albeit reduced grades below ground, its likely save for any further legal issues and disagreements on explosives, that CEY will maintain 420K ounces per annum. The 450K target is a positive in the management ambitions but one can't help but wonder if its achievable.  Any dividend news is very unlikely until the 'legal' issues have been cleared away. With more clarity CEY's likely to get rerated...for the long-term investors what more could one want? Save for a dividend which won't be far away! Target Price now looking, as stability comes to the region and the legal threats being dealt with of a minimum of eighty pence (80p). 

To the (e)xcitement of XEL, the Directors have put their hands in their pockets for 78,000 shares. One would have got even more excited had the Chairman Mr Timothy S. Jones not flipped 25% of his options to cover their costs albeit is forgiven as I think his salary was around £45K last year...(willing to be corrected). Can XEL surprise us all before the end of quarter.

No time sadly for Providence Resources (PVR) albeit the news of delays doesn't bode well for the SP, in addition to a potential "large" seller there as well. (D if you wish to post the link). 

For those interested in the social elements, last night involved an amazing curry assisted with a 'polite' amount of alcohol haha.

Atb Fraser