Lesotho’s Prime Minister Thomas Thabane has returned to state house in the capital Maseru on Wednesday. People I know there have said things haven't changed much before, during or after the coup that was not. Its my view as Lesotho starts to become hotter for FDI (Foreign Direct Investment) greed will be a motivator in the Country (there's a shock!). It’s envisaged that David Seeiso has things in hand (the current King), he's well educated (if I'm correct UK based and studied law). As such, it would be wise to subscribe more risk to the companies operating there or awareness of risk at the very least.
Coups or fears of one are damaging for those needing finance albeit producers would be at risk as well. The risk protector is the fact that the Lesotho Government already own 30% of Gem Diamonds (GEMD) Letšeng mine. One assumes there's an element of good faith especially as things start to improve in the diamond sector even with an easing in some pricing (June 2015 envisaged). Across a couple of borders and only 430 kms away GEMD's other mine Ghaghoo had its official opening. One will await an update from Gem Diamonds in due course but do not expect too much until phase 1 is fully ramped up in 2015!
Am I the only one having a predictable case of déjà vu? The Philippines, rather than encourage investment at the detriment of Indonesia, have decided to consider a ban on unprocessed ore with a Philippines Senator (namely Bam) filing a bill to ban mineral ore exports. So guess what happened with the Nickel price since the announcement three days ago? Not a lot! Unusually where speculators would have been in the market, they didn't (I'll come to that later). China is getting panicky and ramping up efforts to process ore in Indonesia (secure supply); nevermind the small amount of Chinese traders that 'bought large' over in Asia as the news dropped to secure supplies.
The Philippines, as a result of their power costs/shortages, dire road network & infrastructure may end up being an also ran! Introducing a Smelter Royalty/Bond would be a better way forward but as apparent in Indonesia; they have to screw it up first!
Now potash, on a contrast to equal supply and demand (Nickel currently) but with demand increasing, potash producers are not helping themselves. On the one hand you have SXX (Sirius Minerals) wanting to produce Polyhalite (Chemical Symbol K2Ca2Mg(SO4)4•2(H2O)) whom appear to be capable of producing a better product and is likely to be in demand, whereas the Financial Post reports massive Potash over Supply, albeit I think they've got their figures a little mixed but are actually on the ball.
With increased supply coming to the market it doesn't bode well for the long term. Prices will remain under pressure, especially with the risks with the Canadian producers coming along. Quite why anyone would back new developments of potash now is beyond me (exc. Sirius Minerals (SXX). (See: Canpotex partners Potash Corp of Saskatchewan overview by Wayne Brownlee (Due 17th Sept) (will provide an overview of the state of the industry and current market conditions as well as an update of PotashCorp’s activities), Mosaic Co (Second Quarter 2014 Results) (Dire) and Agrium Inc.(Q2 Quarterly Earnings Report (see Market outlook page 11) (Not so bad but the outlook looks challenging).
So with potash production increasing significantly, world potash demand by FAO ((Food and Agriculture Organization of the United Nations) is predicted to grow for Nitrogen (N), phosphate (P2O5) and potash (K2O) annually by 1.3, 2.0, and 3.7 percent, respectively up to 2016 (FAO). FAO have not been so bad with historic predictions save for 2008, and 2011 food prices. Yet surprisingly supply is set to out strip demand this by near 30%. For the SXX holders, one should note in the entire FAO report that there is no mention of Polyhalite which will increase the oversupply of N, P2O5 & K20 post 2017.
Now for the trader, one should consider why commodities are having such little speculation on them. Even Nickel, where the Chinese are confused as to what to do with the Philippines situation that only resulted in demand led panic spike up 25 cents and eased to 15 cents at $8.70-8.77/lb. The concern is the lack of speculation on Gold, PGM's, Nickel et Al (Before the Harvard critics get on my back I know the et al is wrong but required!).
Its more than likely that the EU action (purchasing loans aka asset backed securities and covered bonds from October 14) will result in a spike in Gold (attempted risk on for Europeans) but those speculating on a wider spike may be sadly disappointed. Short-term target of around $1305-1335/oz. for gold is more than likely post any unwinding of margined longs (Chinese). There’s a very good suggestions that the commodities markets are subdued because of the contraction in Chinese financing; more than likely the case. Any action is likely to start post quadruple witching on the 19th of this month, with a refocus on commodities, rather than equities. Perhaps long indices, long Nickel and gold...time will tell.
On an Indonesian focus (read as Churchill Mining (CHL), it's noted that Energy Minister Jero Wacik has actually resigned. With that in mind, do Indonesia have the opportunity to rectify a number of issues in one swoop and blame the departing? Also it's noted the shorters on CHL got categorically torched the other day, disappointing but unsurprising with the potential (not without risks). Now Joko (the incoming Indonesian President on the 20th October 2014) has his work cut out in the country’s mining sector (scuse the pun), nevermind fuel subsidy issues. Could Jero Wacik have resigned because of the Corruption Eradication Commission (KPK) investigation into bribes? Time will tell…As Indonesia are evidently replicating the cleanse of corruption that is taking place in China currently.
With this week being so focused on FX trading, it’s no surprise that as a result of ECB designs on partial quantitative easing, its been difficult to keep a pace with the share action fully.
It would appear there's been a fictional request by the ECB folks for this weeks Friday Video on a Saturday, to assist with getting their economy going! The title ironically is very apt.
One assumes the market will be excited about Morrisons update!
Atb Fraser
One assumes the market will be excited about Morrisons update!
Atb Fraser
Fraser- Hi- thanks for the comprehensive update, lots to consider as usual. Glad you found some time to play the ECB move later in the week. One has to pay for the peanut butter that will be used in the next attack.... :-))
ReplyDeleteRe SXX- yes, polyhalite- the deposit there has been ignored by ICL/Cleveland Potash for decades and decades and then SXX do the crop tests, prove the mkt is there and hey ho, ICL now believe in polyhalite too and they advertised for a Capital Projects Engineer in 3/14 and they are now looking for Polyhalite Mechanical Fitters, whatever they are. Polyhalite works v well with certain veg (corn, sugar cane, wheat, soya, potatoes and oilseed rape) and not so well with others but the crop trials have established a v willing market and the likely sales price ($150/t) is v competitive v potash at $300/t plus. Given the pricing differences, polyhalite will be v disruptive for the big potash players, and it may even pay them to buy SXX and dilly dally/mothball it in effect to stop the new product hitting the market, that is if/when they get their planning approvals in Q1 2015. I know this is a cynical view but it has been done in other mining activities and they really don't want to compete with that pricing differential and the comparative yields re the crop studies done to date.
Re CHL- yes- apparently some positives comments re the document inspection here- the ROI contingency didn't get a flamethrower into the room to "simplify the case" and one presumes they will have reported back to their superiors, hopefully using words containing "an open and shut case" "they have us by the short and curlies boss" and/or "they have us bang to rights here governor". Heaven knows why anyone would consider shorting an arb case (unless they wear fireproof underwear and don't need to sleep at nights) no doubt those thickos will be back to creating synthetic CDOs and other weapons of mass capital destruction today. Its a strange world but they should be made to wear "keep it simple stupid" t shirts for the next few months. In the meantime OXS is v quite, judgement could come any time, Yukos case set a nice precedent but getting the dosh could be far from simple if they get the ruling in their favour. I am awaiting Stans legal moves to enforce their $118m win as a possible precedent here.
Cheers for now. The Leggie