Morning Mumble: London's Burning??? Any old iron! & the rules of 3 warnings (Tesco validating my view), all that glimmers certainly isn't gold (at the moment).

(RNS) London Mining announces that it is in dispute with Glencore regarding a cash prepayment amount which the Company has requested and which Glencore has refused to pay. Does not bode well for LOND. The company states it has interested parties for its offtake agreements including prepayment financing. In the interim, the company does not state why GLEN have refused to pay? Quality Issues? Oversight? Perhaps the moisture content is too high? 

The risks in LOND, over and above the quality of ore are increasing, with finance disputes, one envisages in the absence of a deal and partner, LOND equity holders need a haircut. One will await an update from LOND but with the weakness already in the stock, the shorters will sense blood! 

Fortescue Metals Group (FMG) on the ASX continued to show its weakness breaking $4 a share and slipping quickly to $3.58 a share. The market is waking up to the realities of Iron Ore, as predicted here first haha...an exclusive demise of the Iron Ore higher cost producers. Now I'm not one to knock bulls on China, but had their assertions been correct about China then Iron Ore would have maintained near 98-103$/t based on growth modelling. FMG, even with the quality of Pilbara is suffering and so are Rio Tinto and BLT (BHP Billiton). For those not FMG aware, but it would pay to be, FMG is 100% Iron Ore, 100% bet long China (By supply/demand). it's not difficult to see the very basic ideology behind short FMG, short Iron Ore and leverage via OTC on China real estate developers to short. Its far from complex, more so simplistic. 

So with Friday hitting my short term target with the Tianjin Chinese spot price at a five year low of $US81.70/80.99 a tonne (pending on which terminal you use), it doesn't bode well for the industry as a whole. I had pooh-poohed the idea of Glencore and Rio becoming GlenTinto, initially I thought what would Rio, a company of fairly good returns for shareholders want with an entity (GLEN) that only dilutes their returns. You just have to look at shareholder returns of the past to gauge the differing quality. The past however, is history, albeit an indicator of the future, the landscape is changing and as such, ignoring all the regulatory approvals required, Rio might just need GLEN more now than ever. 

The Chinese realities and/or capitulation are setting in, with those bulls that were stupidly blindly to the obvious even admitting they were a little over zealous with forecasts. The stimulus model works, it does reward investors, but China's growing slack (waste) and requirement to meet target are its down fall and that of the Iron Ore price, slackening more so than most analysts perceived. For the wise, it would pay to close the shorts on Iron Ore, its near to the matched supply and demand pricing of 75-81, which allows for no contingency. Perhaps with the builders in the UK announcing normal results, one would be wise to consider the same for the rest of the world in terms of normality rather than excesses. 

India may provider some welcome relief as traders attempt to bottom feed on the price. I would dislike being long to the tune of $2.5B on Iron Ore currently at $105-130 but that is something for the over leveraged Steel Mills of China to worry about, with losses approaching near $4b by my estimates. There will be a sense of urgency at today's price...Australia is certain due a kicking as a result...

Tesco, the woes of the supermarket announced today, Tesco has identified an overstatement of its expected profit for the half year. Currently circa 209, there's going to be significant volatility in the stock, the psychology behind these types of companies is simplistic, low risk, dividend minded folk. The door will be best for some, others may look at the "end game" in 5-10 and the purchases could prove prudent.

With shopping changing and the landscape for the next 15 years being totally different, you would be hard pushed to justify owning any supermarket, trading yes, but not owning longer term. Across the sector, the market has rightly assumed the entire sector may have made a faux pas, time will tell as MRW et al run off to check! With the spreads widening on TSCO to near 1%, the trading companies now not so confident. What traders and investors should take note of is my rule about profits/trading warnings, when they hit 3 its time not to bottom feed, it's time to short. Don't get emotional and hope...

A few questions for Tesco, perhaps a reporter with some clout could ask them "when they first learnt of these issues; when was the board first made aware and was there a 3 month time lapse between the concerns being raised and the announcement today." 

Avoiding focusing on specific prices of base metals, its interesting to see that Nickel broke a key support line of $8/lb having held well, it came as no surprise with the larger trader closing only the other day (he/she/they were long) (commented only here). Nickel is however of importance, with what is the closest commodity to equal supply and demand; there appears to be a total absence of speculation, trading and a reducing demand. Indonesia may well be punished more than they realise as the price declines and the smelter requirements are harder to justify now China is becoming more realistic. 

Gold has the biggest absence of traders in near 14 years by my estimates. The only sensible reason for this is in 2013/14, traders brought forward budgets (read as Chinese) to buy at alleged lows. What the traders (myself) did not fully consider, which is essential with higher volume is that other buyers may be committing monies that would create a market at a later date. i.e. 2014/15. So gold, contrary to my previous belief is likely not to change much until 2015 or until traders return whichever is the sooner. Something certainly worth watching.../trading. Gold currently $1214.19/oz is very close to another key level of support...

Sticking with gold, does anyone notice a theme with Amara Mining (AMA),Yaoure High Grade CMA Zone. Now I'm far from a geologist, and won't pretend to be, you only have to ask me to explain shale oil and gas to make you laugh about the earth's workings in all forms. However, speaking with someone better informed this is just getting better on the announcements. See: Amara Mining Plc RNS Announcements. Even allowing for the gold drops, AMA becomes viable for a lot of majors that can afford the CAPEX, perhaps even Samsung for those well versed in AMA.

Atb Fraser

Leggie, Red or White Blue Nun:-) and hope you enjoyed your hols!