Wednesday, 23 July 2014

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

1 comment:

  1. Fraser- yes- the right winner in Indonesia, albeit the new vice president has said there should be "no tampering with the ban", but his boss with sit down with the interested parties, who I believe did have 7 or so years notice re the ore export bans and most seem to have done sfa in that time. Indonesia has some major issues, one being the 2.4% budget deficit which is partially fuelled by the state fuel subsidies, which stand at $21bn pa!! And then there could be a bit of corruption in too :-)) He may not be "popular" for very long if he starts to sort out the mess in any seriousness. Still CHL are better off with him, he can settle with them and blame the previous idiots, which always seems a nice card to play.

    Re BLT- yes, a good set of results, good mgmt. like RIO and they probably need rerating, even given the weak iron ore market.

    Ive been looking at Bolivian nationalisations (a la Rurelec) and there is a nice long list for me to peruse, they have been prolific in this area in the part, possibly a policy that has won them votes but will cost them billions over the coming decade. Ive done some pruning and am down to 5 investables now, with further work to come (in between the Tour de France coverage at present). If you are interested, let me know and I will relieve my best risk/reward case by the end of the week, hopefully. And lets hope they do a tad better than RUR :-))

    Cheers. The Leggie

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