Morning Mumble: Iron Ore (BLT) and ignorance is bliss....+Gold (see what I did there)

Good morning, I had a trip to the smoke yesterday and was wined and dined...they even paid god help them! I suspect it was because they realised I was still on the detox and hope the rematch would be at my expense! 

BLT (BHP Billiton)'s results actually surpassed my expectations overnight. The Operational Review Qtr End (30 Sep 14) has some negatives in it, which are worth considering. A US$361 million increase in the budget of Escondida (Organic Growth Project) to US$4.2 billion was approved during the period. The project remains on schedule for completion in the first half of the 2015 calendar year. I'm perplex by the definition of organic growth but one will avoid being too picky this morning. 

The production allegedly fell with anticipated grades being on track and that essential ingredient "power!" Perhaps Rurelec can get in there quick and sort something out with a security of supply deal? With Energy Coal on the decline due to droughts and "dust" restrictions, may aid the market with South Africa going on strike as well (see Glencore Thermal Coal Strikes). Expect some collateral damage in manganese production as well, it won't be long before the Aluminium sector in South Africa gets the 10% pay rise bug as well...can't be left out of the recent, yet damaging, pay deals in the PGM sector! Its considerate of the strikers to assist the market, perhaps they can have rotational strikes to keep the sport prices up!

Metallurgical coal had a stonking increase up near 25%, with an additional 4% gain guided for the year, one expects all operations (subject to weather and strikes) to be operating at capacity. These sort of results look good for any divestment along the way...(in the short-term)

The summary will save a lot of time...quite why the market ran away with itself and pushed iron ore stocks higher in Asia/ASX is beyond me, it merely means the big guy just got stronger. However, with the flood / glut of Iron Ore on the opposite side of the world in Atlas Ore (AGO) might just be a goner. It simply cannot compete and finally analysts have realised the error of their ways and recommended sell.

Its not rocket science why Atlas was a short, and after the downgrades (read as get out whilst you can), one would be very rude not to get in there and give it a kicking short. Even UBS might just have called it well on Atlas (for them), not that I'm one to criticise having a neutral rating on a stock whilst the obvious was happening! Iron ore flood leaves little wriggle room for minnow Atlas, it appears that Atlas are already on the bank, they just need putting out of their misery. (Caveat subject to no Indian Buyer). 

Irrespective of the casualty, it would appear BLT's scale up approach is working, I would take the operational savings as a positive in sustaining returns you'd be wise not to wager too much on the basis of increasing returns. It’s apparent between Rio and BLT there's going to be a tough few years (3-5 years), one would be wise to avoid such logos or business plans that state "iron ore + $50 all in costs.

Little time to cover Petropavlovsk Plc Q3 Production Report and IMS but a quick glance suggests they're well set for the appreciating gold price; they need 1300$ just to pay down $50m of debt a year. Leveraged plays have seen their true value (now), so don't get too carried away thinking £10+ again...It looks as though POG have benefited from FX gains against the Rouble in costs terms with costs of sub $900 (circa) compared to the guidance of $900-$950. With a paltry debt reduction its not going to be an easy tax but the management (contrary to my thoughts) have been able (or at least appear to) keep treading water until a recovery in the gold price. At the current price of gold and excluding the hedging programme it looks like break-even would have just occurred with zero debt repayments. 

With a swallow flying across Iron Ore and Oil again, expect some nervous advancement in their respective stocks...Gold spiked over $1255/oz. for a brief period overnight and with silver quickly following. The irony being silver seems to be looking for a twin, is it PGM or Gold? The market cannot decide, but Hochschild (HOC) need something and soon! Expect some news on a capital reduction/cash cost initiative over and above the current plans. With limited silver sellers (limited supply) silver looks about to jump on to a gold bandwagon of 60:1 ratio, currently circa 70:1.

Atb Fraser