Friday, 25 July 2014

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

1 comment:

  1. Fraser- Hi- The Boss is now happy so I have some time to get caught up on my stuff :-))

    Re AAL- yes, not a great tactic to make it clear that they are desperate to sell assets- perhaps they will sell at any price, surely they have to consider retaining at this stage of the cycle if they get the sort of offers I would consider "fair" :-)) They seem to have painted themselves into a corner and the shareholders will now put them under pressure to deliver on these sales. A crazy way to manage imo, for what that's worth.

    Re BBY/CLLN- BEs nailing a jelly to a wall quote was well aimed here- what other holes are there in the BBY order book?? And how can it be valued, apart from at a heavy discount, in the current circumstances. Will CLLN catch the BBY knife or lose a few financial fingers in the attempt? The deal with have to favour CLLN substantially.

    Re BCN/REM- Its clear that REM was substantially mispriced re the BCN float- its their main asset, it supports their £100m mkt cap overwhelmingly, and REM and its directors have been buying BCN shares in Canada for months. The main asset imo is La Ventura, which is 100% BCN owned, albeit the 2 REM JV assets are of value too, plus the 100% owned borate mine, which is partially developed. So BCN hold the major share of the value, but they had a mkt cap of circa £35m. It all comes down to whether you feel the mines will be developed. With David L as a mouth piece now, and fairly low PEA capex figures (plus good IRRs), the key will be the PFS, which should be out soon. Im long BCN and happy to stay long, despite todays predictable moves.

    Cheers. The Leggie

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