Morning mumble: Déjà Vu with Oil, Copper and Kaz! BAObab

Good Evening,

It’s been a busy period, so apologies as it was planned to cover more. The obvious happened with oil being impacted by inventory levels but with a significant amount of speculation anywhere near $60/bbl (Brent) and $48/bbl (WTI).

The market keeps waking up to the realities of another false dawn but over to the Baker Hughs rig count to install some more hope. The support levels are being defined currently, aided in part by storage not necessarily for speculation save for security of supply. The market is attempting to get ahead of itself with the speculation of drilling rig declines, what next? Well Counts via Baker Hughes? Surely not...

KAZ Minerals (KAZ) announced the audited results (for 31/12/14). Cuprum Holding have taken the crap and allegedly left the good within KAZ. As things are not going to plan, KAZ's backers have kindly been willing [waived] to forget about the covenants on gearing until Bozshakol Mine gets off the ground, so they continue in the same vein until 1st July 2016. Had KAZ added 5 days they could have timed it nicely Capital City Day in Kazakhstan. Not because of the changes in Capital City, but more so the need for capital! (Poor I know...)

KAZ's gearing has shot through the roof, more so than expected, in part due to the copper price falling more than those conservative parties thought! Shareholder funds written down, debt down a paltry amount, but gearing doubling as a % of shareholder funds and by EMC estimates surpassing the 70% as of today. It took the market quite some time to read a simplistic announcement and realise the concerns. With Kaz's currently cost per lb, they'll be hoping for better data out of China on the back of the PMI data.

Copper being the trade on PMI data, responded well to HSBC Flash China Manufacturing PMI. Copper's move mirror/validated factory production being well up and the Chinese New Year bringing fresh hopes of positives. Noteworthy the PMI data is contradicting the shipping, factory gate prices and company profits with production being up for the first time in 5 months. We should read into that that native demand is stronger than exports. 

Shorts were wise to cover on the China PMI data as the economy starts to benefit from the commodity drops. Copper is/was the weight of the PMI data, it responded well bouncing to just shy of $2.70/lbs (5% jump). The point to be wary of is housing is the driver for Chinese copper, it's stalling and this will dampen spirits in part. 

The market is now learning myopia creates volatility, as such speculators are looking further east of China to Japan and America for more solid copper indicators. China's issues are known and priced into the market. Japan and America are anticipated to spend, copper will trend (P+ve) for the long speculators, tapered in part by the Chinese known issues. Save for any issues causing risk off volatility. Additionally, the price is being supported by almost all the majors suffering from a drop in grades and alleged lower guidance (even fractional). 

With the gap narrowing in the supply and demand (for the interim), its wise to take profits. We are led to believe that the Zambian spat will be resolved shortly, so Barrick et al can ramp up production once again, putting some breaks on coppers appreciation. 

Baobab's (BAO) largest shareholder strikes and crystallises losses for every long-term holder if selling today (including here). Having seen value in the asset, the proposed delisting and cash offer is a disgrace to a decent asset. Unfortunately is what the market is as the market allegedly struggles to find financing. Booking a loss on BAO today is not with disappointment but more a caveat towards the directors (whom will for decent investors become uninvestable). 

BAO's Directors for some reason have an agenda to delist, if both proposals fail *(unlikely) it’s worth kicking the directors into touch. It’s asserted $12M will be difficult to raise within the current market, which rather sums up the capabilities of the management. If you see such parties on the header of anything trade-able, add a risk caveat. One can but hope for another bid? But don't hold out much hope...

More later, but for those following my SIPP dullness, Blue Solar Income Fund release their unaudited Condensed Consolidated Interim Financial Statements for the Six Months Ended 31 December 2014, bang on the money...

No time for WLFE, GLEN, RIO or Vale, but later?!?!

Atb Fraser

Morning Mumble: Was the PM Add of 23/02/15: LGO predictable including the debt ++Plus the de-constructed hopes of the BLT Sandwich

Good Morning,

Many thanks for the enquiries why there has not been comments but it’s simply put, work is very busy with some work for those entities looking to profit from shorters, the white knights. Fear not, there were no cuts or bruises and thank you to certain parties for those mad enough to allow the Ninja known as my daughter tearing up your office whilst in meetings. 

LGO Energy (LGO) had the appointment of a joint broker on 5 January 2015, EMC: LGO Energy. Although not much of a short its always nice to pick on these eventualities that are more certain such as certain entities companies contradict contradicting their "cashflow" forecasts and debt arrangements and whilst raising and raising, and...You get the idea. Today, there is the issue of equity and oil swap arrangement with BNP. Today's news makes it wise to close the shorts on LGO.

The arrangement may be positive for LGO longer term, but if one looks back at the placing etc. There are material risks investors should not ignore including the "revenue per barrel of the Spanish assets all those years ago". LGO is in the same basket as Victoria Oil & Gas (VOG), where the management decisions come with certain risks that can have a material impact on the value of a holding. Although the SP held up better than envisaged with every man and his dog working out the obvious. (Link relevant twice today EMC: JRG + LGO Placing (history repeating itself))

Had Anglo Pacific (APF) been proactive with their investor relations they would have announced to the market that Largo Resources (TSX: LGO) received a non-binding indicative term sheet from its consortium of lenders (Largo link). TSX: LGO are hoping, subject to committee approval, to defer its debt amortization schedule and extend the maturities for its construction debt facility and its export credit facilities for its Maracás Menchen Mine. 

TSX: LGO give an update on the progress and the asset for investors that like layman's terms. The market should now be accustomed to the poor updates as shown with Isua Project in Greenland (EMC: Isua). APF will obviously be busy hunting a transformational top quality coal royalty to be bothered about something they paid $22M only 8/9 months ago. So for those holders unable to gain anything useful you read it above in the Largo link. 

BLT (BHP Billiton), with Andrew Mackenzie (CEO) opening his 2015 Interim Results Presentation by raising his arms to demonstrate how comfortable he is with the results. The market is going to like the interims. South32 (Known here as short32) demerger remains on track to be completed in the first half of the 2015 calendar year. 

Net debt was higher than EMC considered by circa $500M but negligible in the grand scheme of things. Post a few items needed more urgently its maybe wise to revisit BLT. Returns are lousy in % terms of capital applied, but the market ignores such things, so like Rio, over to the bulls to assist the sensible in making decent intraday gains. Copper (circa 11 mins in) within BLT suffered the same woes as most of the industry with energy inc. water and grades being lower. Despite lower prices BLT have done better than expect. Iron Ore update (circa 13 mins in)...too much to cover in such a short time.

Just Retirement Group (JRG) being a trade EMC: JRG + LGO Placing (history repeating itself). Comedy on the OPEC Emergency beliefs at these prices, investors and analysts should not read too much into "news" that contradict what statements have been made in the past. 

Atb Fraser

Morning Mumble: The Greek Malady (poor I know), with political guff in the European Disunion and Satan's Schilling + Wolf Minerals and GKP (Gulf Keystone), the former muppet stock?

Good Morning, 

Greece come out of round one without even a bruise winning the poker tournament. The EU couldn't even afford to call their bluff and go to the wire the EU (Germany) knew what was happening. The FT Greece and Eurozone agree bailout extension Peter Spiegel in Brussels. 

The markets are now realising the agenda of Greece but aren't acknowledging the risks, save for the euro being trashed, off near 5% since the debacle began to unwind. When certain EU countries appear weighted to benefit by any austerity within the Eurozone, the underdogs will become bitter. The EU have added some more fuel to equities by a Chinese type of intervention saving the bondholders, namely themselves. 

Greece have in essence been given a cooling off period, any negotiations were too close to the Greek elections. In at least putting some space between the two events perhaps, although unlikely, just perhaps Greece will yield to the EU demands and lose some steam, a possibility but not without giving something in return.

What it does show is the commentators who thought Greece do not have a strong hand were wrong. As mentioned at the time on FTML, Greece have an agenda and that is its own backyard, unlike some of the European Union. With Greece's win yesterday, its wise to consider those risks approaching and the small print of the extension.

With the current Dutch finance minister and eurogroup chairman Jeroen Dijsselbloem, stating “I think tonight was a first step in this process of rebuilding trust. As you know trust leaves quicker than it comes. Tonight was a very important, I think, step in that process.” It’s fair to say the entire process has become disenfranchised from the "EU" collective. Trust? Really...If one needs to establish trust between a union and partnership, its time to leave. 

If Greece feel they have been compelled to take "Satan's Schilling" or not is immaterial. Greece had the money and now common-sense means with political change and blame they’re reviewing the terms and thinking, "what have we done." The problem is, the entire EU, contrary to the assertions by those alleged better informed analysts, is at stake. There may be a common-agenda or policy with the loss of a currency.

Greece's default will ripple through the EU, with those in hardship likely to vote for similar political representatives to broker such deals. Would it be best to forget EU QE and await the outcome of Greece, Spain, Portugal and Italy await the knock on effects? I doubt it, but one might just be throwing good money after bad...

There's some gossip doing the rounds about Wolf Minerals (WLFE). Its certainly not the price of Tungsten APT US$292.5/MTU. Hmmm...The hilarity was the contraction in the oil price with positions requiring to anti up more margin or close on Thursday and Friday, so what happened to the price!?!?! Those cheapskates sold their positions, thank you for making the Christmas card list!

Its suspected Malcy is the cause of the gossip and reviews on Gulf Keystone after his views on iii… 

Short one as it was very busy Friday and Saturday even allowing for Manflu and the like.

Atb Fraser

Morning Mumble: REM increases its stake, POG's links to PVR and CNA being the new Tesco?

Good Morning, well for most, as there's a dreaded manflu and virus is here!

REM (Rare Earth Minerals) increases strategic holding in Bacanora Minerals to 14.37%. Doesn't bode well for Bacanora, based on past performance. With Graham Edwards having (or potentially) having an interest in 24+% it will be interesting to see how voting goes at the EGM.

The developmentss at Petropavlovsk (POG) are becoming a circus with an update.. So the board believe their proposal is better than Sapinda's that is allegedly at a higher share price than that being underwritten. Surely those underwriting the current proposal don't what the apple cart rocked, with belief that is very high risk of insolvency in the event POG board and bond holders don't get their way. Sapinda should outline their proposal with all necessary paperwork including evidence of funding sooner rather than later.

For those with an interest or following of PVR (Providence Resources), Sapinda are involved in Sequa Petroleum whom are rumoured to be the farm-in partner for PVR (EMC Sequa and share sale) and are currently alleged to be raising the necessary cash to fund this deal. So are POG correct in their analysis about the ability of Sapinda to raise the cash? Over to Sapinda to up the ante or better yet, ante up!

PDL (Petra Diamonds) have come out with very positive results and a paying down a significant proportion of debt in their interim results. The numbers are healthy, in fact higher than what the EMC expected. Having recently been short (EMC) across the sector for the play. We are becoming more positive after PDL's interims so a review is needed as financing is coming back into Antwerp via the Middle East (EMC GEMD + Antwerp Bank.)

Russia is impacting on precious stone sales in 2015, the contraction should have already been felt. PDL believe prices have stabilised. And with a few new lenders in the market, they'll be cautious about over leverage. Israel may just surprise us yet with a new diamond fund, but don’t expect too much price appreciate in the short-term (if any).

There's been some gossip in recent days about Centrica (CNA) acquiring Smart Metering Systems (SMS), could the wires have been crossed? With SMS’s contracts with major energy companies would not necessarily have any added value added in acquiring SMS, more so its likely to be a negative.  

With CNA results out today, one cannot see them making too many acquisitions whilst they slash the dividend. They have announced a small contract with Total Gas & Power Limited (TGP), with the potential for an uplift in the order size. It would certainly fit with Centrica's longer-term plans, but perhaps not SMS and certainly not now! A logical fit would perhaps be Melrose and incorporate SMS within Elster.

No need to comment too much on CNA’s final results. An Oil & Gas + utility company disappointing the market. Revenues up, debt up, profit down, group investment down a whopping 68% with a further 40% cut in E&P capex by 2016, as a result they've 'reset' the dividend. CNA could just be the Tesco of the energy sector...? Over to London to push those close to the margin to spin the Canadian interest in CNA into the rumour mill. 

Atb Fraser

PM Bolt On: A very brief cautionary notice...Oil Bounce.

Good Evening,

With the Greek debacle approaching it's knife edge of a call. One would be wise to look at the risks to all things Euro-related. The deadline is the 28th Feb, save for anything changing in the interim its positive to assume things are going to the wire. Greece are attempting to identify the debts it wants to rearrange (read as trim the terms). Review those FX positions and certain exposure on the Athens Stockmarket, your dealers will be! 

It was surprising in today's phone-in for the EMC to categorically miss the margin and leverage requirements globally causing a bounce in oil. Quite where the price lands as people readjust their positions because of what we shall call the "leverage review", is not a mystery but certainly guess work in the very short-term. Are spread-betting firms rushing to limit their risks in what was easy money before? Over to IG Group and PLUS 500 for some more clarification. 

Can the bank of Attica go lower? 

Atb Fraser

Morning Mumble: Centamin Egypt (CEY) the jinx of AIM...'ALLO 'ALLO Alecto and watch the F(ORM).

Good Morning,

Centamin Egypt (CEY) are slowly becoming the curse of junior AIM wannabe gold miners. First there was Nyota Minerals (NYO) now Alecto Minerals (ALO). One can only assume CEY disliked what they have found within the two Ethiopian licenses, or have perhaps fallen out with the management. 

Although looking back at ALO's  placing rns that was a hugely discounted (circa 40+%), "two gold projects in Ethiopia which are currently subject to a joint venture with Centamin plc." Now had there been no discussions or a potential end to the joint venture with CEY, then I do not believe the wording of "currently" would have been used. Nor in fact the discount that was applied to the placing had CEY been involved. 

Did ALO know about the termination of the JV before or during the placing? Were there discussions about the termination happening whilst the placing was occuring? Over to those holders whom care enough to support this company. Yes, potential upside but not without significant shareholder support and risks. Raising 600KGBP at a 40% discount shows the realities of the situation.

CEY can now strong arm Kefi Minerals, where rumours have been loose but circling for awhile for a take out. Kefi Minerals are "currently" refining the NYO Definitive Feasibility Study (“DFS”/ aka the shambles under NYO), CEY are well positioned to offer funding either via equity or take out in Kefi. 

Knowing a few in Kefi, I suspect they'd not prefer an equity raise at the current SP. With the short 2.0 on Kefi by NYO holders despondent with all things gold like, the price of Kefi has performed exactly as it should. Perhaps KEFI will be the operator of Tulu Kapi for Centamin? This nicely brings us on to...

ORM Mining (ORM) give a Barruecopardo - Financing and Operations update including a loan whilst financing discussions take place of $1.5M. They've managed to find a party to fund the entire stage 1 development of Barruecopardo Tungsten Project (The project). Step forward Oaktree Capital Management, L.P. (Oaktree), "a leading global investment manager". ORM inform their shareholders ORM would be manager of the Project, and receive an ongoing management fee for this service. Ormonde has been assisted with the arrangement of this financing package by Swedbank Norway and Davy Corporate Finance (No doubt a fee payable).

What isn't clear is whether ORM will have any equity left in the project post inking the deal with Oaktree. For shareholders it appears like a near zero cash disposal of their asset for a management fee (as yet undisclosed) and a minuscule equity holding (if any) remaining in the project. 

Due to the significance or lack of in such a deal, one hopes there will be a vote put to shareholders on any such deal. Clarification will be required on what majority holder (namely Oaktree) ends up with in equity terms and what management fee is payable ORM (including the small print). One has to wonder whether there will be anything left for shareholders. 

POG, (Petropavlovsk) notes the statement made by Sapinda Holdings and perhaps there's some jostling?

Limited time, Atb Fraser.

PM Bolt On: Chinese Property the shadow of valuations, and a scatty walk through Chinese economics.

Good Evening, 

The EMC and various traders/parties have been batting a few (add-on) ideas around for a while and coming to firmer conclusions today. A summary with suggestions about the distortion and inaccuracies in the  property data in China. Today's discussions drew similarities between Spain and China in separate discussions.

The consensus being that the measure for house prices is warped, stalling more than the Chinese official data implied. With what can only be described as greater downside risk than 2009 (comparative point). Revenues in the form of company turnover and taxation have all fallen, save for some clever accounting, it’s a sector in decline. 

Any Chinese analysis always has a caveat of government intervention (the stimulus), including the possibility of social housing schemes (large scale) being introduced by the Chinese Government or 101%+ mortgages. The sales incentives on the property sales should be discounted out of the price achieved and disclosed to Government data and revenue collectors. The incentives only serve to distort the figures that should have a greater impact than the ones announced.

Margins have been squeezed, with developers failing to incentivize buyers, whether for speculation or their own home. The Government has increased the liquidity, reduced the down payment criteria and loosened the first home-buyer entitlements to include those that had previously owned. 

With the Chinese Government slowly running out of options to stimulate the economy at a local government level, expect to hear more about western investment in Chinese public-private partnerships (PPP), reducing the burden in the short-term on local governments.

So with banks having a biased interest in prices being maintained and how the value is carried on the books against their reserve requirement ratios (RRR). We're bordering on a Spanish manipulation of the housing market by the banks, with an arm’s length consent by the Chinese Government. Any drop of more than 6% year on year leaves the Chinese banks being forced to make drastic cuts to their balance sheets. Alternatively, the Government reducing the RRR requirements further to allow for greater flexibility.

There's a glut of property inventory out there, both commercial and residential, those Irish property speculators will be all too familiar with and wary of. Although China is far from at the extreme of the Irish property contagion, it does have resounding similarities such as excessive supply, unrealistic balance sheet valuations, overly expectant prices and the minor problem of evaporating demand. 

The lower income, like most economies, are the drivers in China and the transfer of wealth between state and comrades is slowing and potentially contracting. PPP could just be China’s saviour to avoid a property contagion and at least meet more realistic growth targets in the short-term whilst international expectations are reset.

Whilst remembering the caveat "without further stimulus", Li and I, have been working on some modelling for the Chinese property sector. (worse for commercial property). We'll exclude the likes of the equivalent Chelsea areas within Shanghai（上海), Shenzhen, Guangdong Province（广东深圳）, Beijing（北京）and Sanya, Hainan Province（海南三亚） (EMC has gone international with copy and paste; we hope Li's versions are not offensive!). 

The EMC is off the fence and a depression and/or staling in property prices until 2017 and perhaps beyond. This of course depends on how the economics of China pan out and how the Chinese Government motivate the economy re: PPP. With factory gate prices, earnings and raw materials all under pressure, this could extend beyond 2017 and as far as 2020 before a realistic growth story sets in. There's a risk of a property contraction year on year for near 3 years, with restricted growth their after. 

The contraction in financing is being noticed by the traders, save for the larger houses whom have internal liquidity and government cheques. A limited example being the Chinese purchases of gold, down circa 30%, copper, iron ore and coal. The property woes are being exacerbated by the contraction in financial liquidity (within China and externally) for speculation.

It implies the RRR of most of the major Chinese banks is questionable with balance sheet valuations ignoring the obvious elements of the economy…or are they, as speculators disappear?? It’s not going unnoticed that Chinese companies are refocusing on international property portfolios (the hedge) like Japan in yesteryear.

In part, the commodities have depreciated as the Chinese were incapable of tapping yet more finance for leveraged speculation (after significant loses), this has a knock on effect throughout China. It would be wise to consider the Chinese milk crash, which is unfolding as we sip our coffee, the pork crash that didn't appreciate during Chinese New Year (historically appreciating). Those Pork Riblets, Semi-Meaty have a greater margin if exported to the Congo now, we'll ignore the political issues some miners should be disclosing.

When considering how weighted the Chinese economy is reliant on the property sector, its concerning no action has been taken. The lack of taxation revenues both centrally and locally is having an impact. Various measures are likely but property taxation will have to be utilised to plug a gaping hole in the local government budgets bolting on to PPP. This will further kick property developers as those speculators derisk their "investments" as the asset becomes a greater liability. As such, China, although further from negative interest rates than most, could be more reliant than any central bank on these measures.

We acknowledge that China's property taxation model is dependent on building, with low cost ownership currently the norm. The property taxation and revenue model will have to be rebalanced, with an equilibrium applied to existing home taxation plus a new homes sales tax. The Local Government debt has grown disproportionately to the decline in property taxation revenues, and the lack of growth, contradicting the desire to “urbanise.”

The rolling up of local government debt will have to be answered sooner rather than later. It would be wise to reset the expectations of Chinese growth to 4.5% now to iron out these problems, rather than anything near the 7% the analysts think sensible. 

There's implications for demand on all base metals and resources excluding oil and gas, and water. More time is required to explain the latter three with China as a consumer and space required to validate the statement. Sweeping statement perhaps, but not without good reason. 

Atb Fraser.

Morning Mumble: Greek Poker Clap-O-Meter, New Palm Oil or Napalm for Noble...???

Good Morning, 

Long day yesterday, on the way home I was reminded of my views just after the Greek election. Its felt Greece have a greater agenda than the debt and appear to be acting like they have nothing to lose. The poker face has big stakes (€323 billion), in the immediate if the grand total is excluded, this year alone Greece is meant to repay €26b. The Greek government are in a better position than those that are owed the money. Greece although failing in their international obligations, can enforce the hair cut with a sense of popularity. 

Excluding the IMF, International Bailout Fund and the combined total of "other European bonds", Germany, France, Italy and Spain all have the most to lose if Greece default. Well that's what analysts hope Italy and Spain don't notice, as its actually only Germany and France. There would be no reason for Italy or Spain to continue the status quo in the event of Greek default. 

Just after the election, I was in a meeting not with Greeks, but with two of the five living in Greece and they're of the view it's about as close as Scotland going independent*. That's fairly close for any analyst, logically if the populous are blaming the conditions for the bailout on the issues, then one is going to gain popularity whilst being in poverty, unity so to speak.

Greece is 50/50 on leaving the Euro, perhaps not the Euro-currency until such time as the Greek Government can appoint De La Rue for a little paper to be able to print the Drachma notes. The Greek Government allegedly created the note designs in 2012 when the EU hypothesised about the Grexit plan. 

If you've got tough measures to swallow, you may as well go it cold turkey and be done with it. Often when there's little left, it’s perhaps the wisest of options, reset of Greek economy and expectations. Consider the Grexit a resetting of standards, with significant consequences both locally and internationally, expect stocks to act accordingly with a sense of risk.

Off to the market, with Brent being the new copper (*currently keeping its head above $2.60/lb). The global bellwether of indicators, bouncing near 25% from lows, with supplies of WTI being greater than Brent, its premium to WTI is going to be validated in the short-term. It’s a hard call with Brent, with Greece wobbling, and the market pricing in rig reductions in advance, there's a good possibility (65%) of $70/bbl Brent and $64-68/bbl for WTI, save for a melt-down or two. A lifeline to those marginal oil producers and even Afren might have a new opportunity, but one doesn't hold out much hope. 

The latest victim of analysis appears to be Noble Group with the most publicised version being Iceberg Research. Having not read most of the report save for the headlines, people would be wise to see how this unfolds. Noble Group manages a portfolio of global supply chains covering a range of agricultural and energy products, as well as metals, minerals and ores. Quite why Iceberg Research published a report if they don't trade in the Singapore market and hasn't participated in any trade related to Noble Group. Unless something bigger is coming along... ...

Staying with Noble's theme, Simbe Darby Plantation may have just had a well-timed takeover of New Britain Palm Oil (NBPO). The palm oil market certainly looks to be turning a corner bouncing away from a critical $601/t. There's risks to the supply chain as Eltinus Omaleng, the bupati of Mimika Regency in Papua, has officially issued a decision document to call a complete stop to PT Pusaka Agro Lestari (PAL)’s activities. 

PAL is operated by Noble Group on behalf of COFCO, (China National Cereals, Oils and Foodstuffs Corporation). Whether legal or not it may go some-way to support the price as the industry signs to longer-ended-dated contracts that will change the sentiment in palm oil prices. In the event the excessive supplies continue to come to market palm oil is heading to $427-433/t. Those lipstick wearers can relax, supplies aren't that bad they need to start hoarding their favourite reds! 

A poignant day at Shaft Sinkers, bringing together those holders around an oil barrel to torch their certs. Shaft Sinkers suspends their stock with, "no value remaining that is attributable to the equity in the Company." This company is worth significant analysis, especially for a certain brokerage that published a report in 2011 that brought Shaft Sinkers to my attention. How SHFT managed 4 years 2 months on the market is a feat in itself, a bull market play that in a cash conscious environment was doomed to failure and will never succeed where the risks are not equitable with the owners of miners. 

Kenmare Resources (KMR) come out and state they've laid off 14% of their staff it was too little, too late to stave off the impact of reduced prices. There's going to be a further 15-20% of redundancies in the future. These actions appear to suggest that Iluka Resources whom can see potential if the employees are halved. With respect to some, it was not hard to work out if you're carrying an inventory of circa 25% of your annual sales that you can reduce costs by near 25%. Perhaps time to save a little in board room pay as well? Over to Iluka! 

EMC: As a seller of GEM Diamonds, validated the view on Gemfields (GEM) with their market update as Q4 trading was under pressure. Production up, costs up and grades down plus Faberge being impacted by Russian spending down a not so insignificant 12%. The diamond and precious gem sector is the Christmas trading quarter with restocking and reading across the numbers, the market doesn't appear to be in sparkling health! (I known).

The Russian's woes won't be the only issue as investors consider a conservative approach to investing and extravagance. Over to Ian Harebottle, CEO of GEM whom "remain upbeat about the growth and development of our sector and look forward to the results of our two forthcoming auctions and the various luxury events scheduled to take place over the next few months." 

It would be wise to believe there's still a softening in the market (not forever) and GEM have a lower quality rough emerald and beryl auction scheduled for the end of the month. If the gossip of a share consolidation is correct for GEM, they'd be wise to wait until the market has more clarity, what more does one need than a greater downside than up! 

Quadrise Fuels International (QFI) holders appear to be badgering the company why the price has tanked so much. The sell was July 2014 (EMC QFI July 2014), not with hindsight but more clarity required on the potential of QFI. Those whom appear shocked by the company's tank even after the Business Update. Do the holders have any understanding of the concept of the model, that being the difference between heavy fuel oil and diesels. Stick with utilities if in doubt...

Congratulations to Aureus Mining Inc. (AUE), who got the ink dry on the equity financing they announced recently including the rump from the IFC (International Finance Corporation). Save for further Ebola issues and further delays, AUE could just be on the turn. The New Liberty mine even allowing for higher all in cash costs by my figures of  $937/oz., still has a decent margin of profit not at today's prices, and would make circa IRR 25% at $1171/oz. 

Wood Group (WG.) reminding the market its not all doom and gloom, with full year results for the year ended 31 Dec 2014, but perhaps not out of the woods yet! 

Atb Fraser

*Political Rant: Well ignore the fact that Alex Salmond was categorically wrong, just look at the bellwether of oil that he relied so heavily upon. In supporting him, had your desired outcome occurred you'd have been selling the big issue to the English Government again, rather than the UK Government when needing a little assistance?

Belated Morning Mumble & PM Bolt On: Shaft'ed (SHFT), AAL something's lacking in the sandwich & AHhhhhhhhh'fren + the Alleged amateur of aim...+the paradigm shift in China's iron ore.

Good Evening, 

With Indaba and a few other items going on it’s been extremely busy week with meetings and teleconferencing from the UK. Today a slide show was emailed around with myself to be "formerly" known as the Amateur of AIM. It’s a pleasure to drink their gin this evening, but restricting the consumption to a few rather than two cases (apology accepted). 

Shaft Sinkers (SHFT) hit the wall with a financing update at 12:32, just a few weeks after a "yoff" (read as person younger than I in a position I'd have loved when I was his age) challenged the EMC analysis of the company and why it hadn't gone bust!?! SHFT is dogged with its inability to share the risks of contracting with the miners, creating an imbalance in returns and something contractors need to learn (mail box for a quote to understand this; its not cheap!). 

SHFT's issues were endemic of commodity prices declining (receding super-cycle), opex/capex cuts, the South African strikes whilst not forgetting the Kazakhstan contacts were totally misunderstood by the market and lack of risk sharing in contracting. It was one of the favoured shorts, kick the dogs. The employees and staff should be ok, it would be wise for investors to note a few key names from the board in their journal for future reference.

Anglo American (AAL) Full Year Results 2014 is/was abysmal. The write-down on Minas-Rio of $3.5 billion is laughable when the company state Minas -Rio is ahead of schedule in October [2014] and expect to bring the project in $400 million below the revised budget. Do the company have a handle on costs at all? Revising costs up, then coming in significantly below the revised budget. Sounds pretty much like a blank cheque. 

The savvy will start questioning whether AAL's net debt target of $12B is realistic in the current environment. With debt set to peak at $15.5 billion (EMC estimates) by end of year, commodities and free cashflow are going to have to significantly improve before one becomes positive on this stock. De Beers should be called Long32 (to mimic BLT's short32/south32) and be divested to support the balance sheet whilst there's value in the market. The market stupidly reacted today, and will ignore the realities. Up near 20% off its lows anyone would be thinking it’s going great guns. 

Afren (AFR) has had a lot of rumours abound today, as per FTML it was proven to be BS, save for the low ball offer that SEPLAT (SEPL) were offering. Afren shot out the gate with little option to maintain but to maintain there's value, with offer talks being terminated. SEPL announcing they had completed extensive due diligence on Afren and made a written proposal to the Board of Afren that provided critical and significant near-term liquidity and value for the stakeholders of Afren. Value for stakeholders...loose term for "not the shareholders"? 

It would appear David Lenigas has started a snowball on Bacanora Minerals (BCN) after the recent request to gain a seat on the board via REM (Rare Earth Minerals). A decent holder said today, they'll reconsider the viability of BCN if David Lenigas gains a seat on the board. Voters would be wise to think where their money is best placed. There's a number of items going on the side lines with BCN and good to follow as the big boys (exc. REM) start to play...its best to leave that one there, however if you're widow(er) or orphan you'd be advised to avoid.

With oil's absolute focus on rig counts it’s a speculators licence to print money as oil was propelled above $60/bbl (Brent) with the Euro-zone giving it a little squirt. Why it's rocketing away is purely down to a bounce with the surplus even allowing for a reduction in production still out gunning demand. The market is rushing to price in a reducing rig count, some "weather issues" (as Malcy eluded to in his blog) creating a better balance. 

The final thought of the weak (scuse the pun) is the iron ore short and the Vale gaining permission to utilise their giant ore carriers to China on Monday. Obviously this has nothing to do with some agreements with Cosco (China Ocean Shipping Group) and the related transactions. 

It’s rare to be able to quote EMC directly, so here's with a little clip from today:

"If China subsidises native production by 30$ a tonne for 125mt it effectively causes over supply and a short to $55/t. The subsidy via development grants will be partially offset by the 700mt at the lower price.  

China have just shorted Rio and BLT by allowing the super ore carriers in on Monday (9th) something Rio et al forgot to mention in their updates! Expect Cosco (China Merchants Energy Shipping state owned), to get further involved in the low cost super/giant carriers the deal with Vale from last year showing they're willing to apply pressure on Australia . The deal with Vale/Brazil has in essence reduced the need for 30% of Australian ore alternatively they [Rio et al] must slash prices.”

We'll leave it there...see you on Monday! 

Atb Fraser

Morning Mumble: The Mammoth (Rio) attempts to please the market and support its own SP

Good Morning,

Rio's full year got shareholders salivating with the headline "Rio Tinto delivers underlying earnings of $9.3 billion and announces a 12 per cent increase in full year dividend and a $2.0 billion share buy-back." The Australian market action was perhaps the best response, flat. 

With a reduction in CAPEX and debt, plus $500m tender and share buyback $1.5 billion will all support the SP and get the analysts chomping at the bit. Rio have been saved by the aluminium improvements compared to last year, EBITDA up near 55% and earnings a respectively handsome 124%, with copper not performing too badly either EBITDA: 33% and underlying earnings, 11%. The recent commodity falls are predominantly outside of the majority of this periods reporting.   

A quick glance at the numbers, it’s wise to remember prices for iron ore have “nearly” halved in the reporting period and copper slipping significantly, with further dips predicted. Rio believe there's around 125 million tonnes of high cost production from China and non-traditional seaborne suppliers to exit the market in 2014, with further exits anticipated in 2015. This is assured as casualties unfold and give up the fight. China may however find a benefit in supporting native production to maintain the status quo of low prices and reduce monopoly.

With write-downs on foreign exchange debt, reducing CAPEX (likely impact on earnings post 2017) and impairments already in the bag, the underlying earnings were set to benefit. Next year may be a different story, with demand under pressure, aluminium and copper (likely to be under-pressure again soon). 

Indonesia's unprocessed export ban has benefited those operating elsewhere (namely Australia and Philippines) and has created an increased demand for alumina and bauxite (but for how long). China has suffered from a surprising lack of stock and turned to Rio et al to fill the void. Any change in Indonesian policy is likely to impact hardest on Rio. In summary, Rio is now the stimulus and dividend play of the market, putting Glencore's (GLEN's) update yesterday to shame. Over to the share buyback to support Rio's SP in the longer term, just like GLEN’s (sarcasm).

With the share buybacks continuing there's no reason for a realistic 3600 pence tp + some hope value, where perhaps the market should be revising the returns downward in light of the obvious happening within commodities. Before holders gets excited about reversal of impairments (write-backs) in Rio, at $1.049 billion (net of tax) of book value for aluminium and bauxite, its worth remembering they've already been written-down near $29-30 billion. A positive in significant cost improvements and high regional market and product premiums, aka Indonesia's loss is Rio's gain but nothing to shout about. 

BCN (Bacanora Minerals) takes the gloves off and announce EGM requisition with the proposal for David Lenigas to join the board. BCN outline the case simply with the search for a technically orientated CEO, which should be sufficient. REM (Rare Earth Minerals) already have representation on the board in the form of Kiran Morzaria, its wise to read the disclosures (and the respective companies’ performance) to consider the pros of any further REM volunteers and employees being strategically placed.

If REM wish to play hard ball with BCN both entities will only be doomed. BCN may wish to throw a spanner in the works and raise some cash and dilute REM. BCN would be wise to contact those valuing decent projects above any association with REM. Lithium is the way forward, but sometimes the assets have more attractions than the associated parties, see: LGO commentary and Victoria Oil & Gas. 

With Brent, WTI, Gold and Copper all taking a breather whilst everyone has a hug in the Ukraine, perhaps next week will bring more volatility. Its nice to see a stale bull in CPR APR Energy reducing his lithium intake as the stock has a change of direction in his fortunes with the Australian Pilbara announcement. Is the company is on the turn? With mutterings of some positive tendering and perhaps even a quick decision coming out of Libya. Over to Aggreko (AGK). 

SuperGroup (SGP) announce that Susanne Given, Chief Operating Officer, has stepped down from the Board as a director with immediate effect and will leave the business in order to explore other opportunities. We'll leave that one for another day...

Atb Fraser

Pm Bolt On: The Whooping great Lonmin and Skyshorts &....Glencore, Aussie Dollar + Oil.

Good evening, 

Exceptionally busy day but moving swiftly on to the realities biting in the PGM sector and digital TV rights sector. It would appear Glencore (GLEN) could not find a company desperate to take on their Lonmin stake bar the currently holders gaining “in specie." Has Ivan lost his touch of being able to do deals?

Lonmin (LMI) and RSA (Republic of South Africa) unless something remarkably changes is unexciting and unlikely to produce decent returns for holders. GLEN's actions have capped any positives LMI would have had, although the shorters will have welcomed the reaction. We will ignore LMI's margins, they don't appear to want to comment above stating they're profitable. 

For those knowing more about LMI, quite why they're spending what they do on their furnaces without introducing ConRoast in its full form is something perhaps the company would like to answer. Does the company need reminding they have grandfather rights in the technology? Bob the Builder would welcome this type of contracting work, build, blow up repair...perhaps Shaft Sinkers should morph itself into blow up repairs?

GLEN's production report was out, avoiding the killing the shares deserved. Spending has been cut from just shy of $8 billion to $6.5, GLEN's positioning in the market with its assets doesn't bode well for the underlying earnings that will be announced in 3 March 2015. Production was far from enough to prevent a drop in earnings, but the market likes the additional cuts, when is GLEN's dividend under review/shelved? 

Those LMI in specie holders looking for a new home, there's always ITV, with a lot of noise coming out from some decent corners of the city about a potential offer. The caveat I'm long in ITV and would welcome a take out by Vodafone or Liberty. Having attempted to test this not one journalist (all 8) known to EMC have been able to validate the chatter. So it comes with a high risk warning. 

GBPAUD (£Vs. AU$), the favoured FX play, with the political issues and rate cuts, commodity prices and general state of the economy, Australia has got its wish on a weaker currency. All those years ago, via Moorad's Shout Table in the Long Room the targets were a little expectant in terms of time frames. Closing the GBPAUD longs and awaiting the next set of indicators post £1VsAU$1.97. 

Australia will be affected by the iron ore 'cost war' with Rio battening down the hatches in Pilbara and giving the signal to the sector, Rio Tinto stops hiring in bid to cut costs, Australian's may be at risk of causing their own increase in unemployment by their determination to allow the excessive supply of iron ore and coal. GLEN's suspension (temporary shutdown) of coal production in Australia was too little too late for the market as their figures of increased production evidenced, over supplying your own market is never wise by circa 8-9mt's minimum. 

Oil (Crude & WTI) continue the realisation of inventories and take a further kicking, the Chinese speculators disappeared as quick as they came, we'll await the press realising the floating storage being below market consensus. WTI trading $49.10/bbl off 1.84% for March contracts and Brent's disparity narrowing at $54.72/bbl off -3.03%, not great for those, including the minnows Trap Oil (TRAP). TRAP came out and gave their holders a royal awakening with a corporate and operational update, one wonders if they were asleep at the wheel as investors.

Hats off to BT.A for playing a very shrewd game and forcing SKY to weaken its competitive edge and overpaying on premier league rights. Unless Sky have bought the rights to a magic show, the end user is going to have to wear some of the costs or the shareholder, its unlikely to be much of the latter. The term unsustainable covers Sky's premier lead bidding very well. Sky needs a few more users to spread the cost...

Who would have thought it, Apple going into First Solar, what next Tesla? Surely gold isn’t weak due to Apple share price appreciation at $1219.10/oz. 

Atb Fraser.

Pm Bolt On: Providence Resources (Share sale)

There's apparently good news in the offing for Providence Resources as a company is willing to attempt to raise the monies to farm in to Barryroe. So with PVR having lifted its skirt and Sequa Petroleum allegedly having liked what they've seen in the data room, it's down to the price. Sequa like to take discoveries to production so have a better understanding than some of the market, but also are savvy in their transactions!

What holders should be concerned about is Anthony J F O'Reilly (major shareholder) and founder investor has slotted 6% of the company holding 6,136,565 ordinary sharesaka 9.49% of the issued ordinary share capital. Its wise to take these sales as signals, or as a little bird tells me to wait for a holdings RNS from a like minded individual. Hmm...not sure I concur with the latter. 

Atb Fraser

Morning Mumble: PGM Horse Trading &...and real economics.

Good Morning,

The rocky road of Republic of South Africa (RSA) PGM industry, or soon to be known as the shareholder gift-aid scheme. Aquarius Platinum (AQP) has managed to find a sucker in Northam Platinum (NHM: Johannesburg) for the Everest Mine that's been on care and maintenance since mid-2012. The costs associated with mining, allowing for a weakening Rand(ZAR) and labour disputes settling down, makes the industry untenable at current costs and a surplus in the platinum industry mean prices are going to stay around production costs plus 7% (ish) for the foreseeable future unless something changes. So any leveraged outfit is unlikely to achieve a sensible level of shareholder returns. 

Will it benefit Sylvania Platinum (SLP) J/V at Everest North tailings operation? Unlikely, but the management can of course use some crystal ball gazing to award themselves some more no-cost options to reward them if Everest North does come back online. Its difficult for a platinum company, if they don't invest in platinum they're essentially saying what everyone else knows, there's better returns elsewhere. Until the gap between demand and supply narrows mothballed mines coming back into production will only prolong the pain for the sector. 

Inspirit Energy (INSP) signs letter of intent yesterday and conducts a "micro" placing today. This appears to go in for a seasonal ramping. Having a position and traded this stock according to ramps and news flow. The company needs a decent partner with funding that removes the risks to the current holders. It’s "almost" identical to LGO's Spanish oil news flow all those years ago. Not without risks, but with some potential, one hopes any deal isn't hindered by a JV with a Goliath that has little interest in pushing the market share. We'll ignore the obvious with the Micro-placing terminology, it’s a placing and very small at that...almost implying its crowd funding. One just hopes they don't open a microbrewery! 

With Oil tracking the bi-polar mood of the world economics at the moment, it’s disappointing to see the likes of TUI AG Plc (TUI) hedging so significantly in their 1st Quarter Results. Forget hindsight, when would have TUI have not benefited from a 50% (approx.) hedging and fill the rest from the spot price? Perhaps this amateur is missing something, but a quick gauge over the past 5 years would have meant a net benefit of circa 6-7% on fuel costs.

Copper is hanging on the cliff of appreciation or depreciation, with some gossip in China that the numbers and trade are down further. In contrast financing seems to be improving for leveraged trading (attempted bottom feeding) and restocking taking place contradicting all those bulls the market was artificially low. trading circa $2.5450/lb. Chinese trade data now increasing the odds of Chinese full-on stimulus if they wish to maintain their growth targets, the market awaits the direction or revisions to growth. 

London Property Bets in the FT. EMC commentary on Berkeley Group & Foxtons, the first set of shorts were 5 months ago and now the market is waking up to the realities again where there's a secondary short as the market accepts the facts. 

Zoopla (ZPLA) and Rightmove (RMV) have to do maintain their competitiveness with their fees and advertising. OnTheMarket.com (OTM.com) is the dilution for the sector and a disruptor over the long term for earnings, whether it is a success is immaterial to estate agents whom can negotiate harder, with London normalising, ZPLA and RMV will be under pressure. Expect the denial and ignorance to persist with price appreciation in the market, until OTM.com's marketing and impacts are felt. 

UBS find themselves with the no news award today confirming they've been affected by the CHF both short-term and longer-term. It will impact on their longer term results, unless of course they've employed a magician.  

Atb Fraser

Morning Mumble: De Ef Esse &

Intention to Float - UKLA - DFS Furniture Limited, should thrill those whom want an almost identical sofa as their neighbours. In discussions yesterday its suggested DFS are getting the IPO away (like SCS) as the trend cyclical and towards the peak. Its something that needs a little more work on, but all the same, when the company is surprised by their own performance but with no mention of this within the IPO docks one thinks they're chancing their arm. 

DFS don't do premium brands which excludes a significant number of middle earners. Having just purchased la-z-boy electric recliners for my crib, I'm inclined agree. The shrewd will not be short initially, with a degree of seasonality to the sales and sector will this be akin to longing Majestic  Wine (MJW) through Christmas to sell in January, save for this year. 

There's some deflation happening in RSA (Republic of South Africa) at the moment with Anglo American's (via AmPlats) sale of Bokoni mine in Limpopo. The reported figure is $263 million down from the $385M before Christmas. they'd only have to wait a few months before they could just gift-aid it. AmPlats will no doubt be happy with any taker, Atlatsa Resources (ATL.TO) may be a different story whose price appreciation was last seen during the Jurassic period.

Today's no news award goes to Tate & Lyle, the views from EMC are known, Sugar is in a dire position. The update is more of a bitter after taste (perhaps stevia like). Investors should consider this another shot across the bows for the sugar investors. 

EMC was wise enough to spot the ethanol margins but the market and certain analysts seem to have ignored the swell in bio-fuel inventories. We'll save the face of one individual at a certain brokerage the shame of what he thought of my ethanol mumblings, only two weeks ago with a side thought for banks including ethanol. So TATE's trading update slots perfectly into the category knows as a profits warning, we'll ignore the issues with High-Fructose Corn Syrup (HFCS) for now.

Oil's over to the big boys to speculate and acquire positions, with the majority on the sidelines, the speculation and big bets are pinned on a recovery by December 2016. One is getting the impression the traders are holding their fingers in the air and misreading the wind which is really a draft. CAPEX reductions will not change the supply immediately, demand will. 

With Afren's interest now looking more than likely to assets only, will the bond holders be taking the company? The longer-term view assuming the market is correct will mean the bonds are looking more like a semi-decent bet.

Copper has decided to find parallels with oil hitting $2.5761/lb on little more than physical buying...could the commodities cycle be on the turn or more a blip in the lower lowers and consolidating positions after significant drops.

It was amusing the banter from the long only contingent today with their reviews of Poundland's (PLND's) acquisition of the 99p stores. Yes, perhaps a timely reminder to stick with the original valuation of £4, having sold in November for pretty much what I paid, today they aren't far off my target of £4 which should be reviewed. 

Atb Fraser

PM Bolt On: Normality resumes with oil and the swallows have left with China needing Growth support, cutting reserve ratios. Vale, APF, X2, Largo Resources...

Good Evening,

In my absence the market been in denial. The assumptions on capex is that there will be a reduction in supply. So the market intelligence focused on the drilling rig count than the supply. Inventories were up and more than the consensus thought. Perhaps the consensus needs some educating with their inability to read the obvious. No wonder the myopic speculation became negative/nervous with Brent and WTI today and ran for the hills. A few fingers were burnt in there today and wrongful assumptions about strikes...you have been warned!

Struggling economies are under the cosh with reduced oil revenues and a weaker currency the infighting is already occurring. It may pay those bottom feeders to consider Turkey for the annual hols. With the interest rate being the main enticement to the Turkish Lira (₺), and the Central Bank under significant pressure the currency(ies) are going to be volatile. 

Record iron ore capacity was announced coming out of Western Australia, it's a wonder who the casualties are. The minnows we know but there will be some rights issues on Indian producers with prices set lower than the international market. Add into the mix the pressure from Russian operators with the currency advantage it’s not looking positive. Its been known on the shop-floor in China, but ignored by the analysts, that Steel Mills are more willing to adopted the "just in time" approach for purchases. The price is going to be stressed unless further stimulus is announced as the Chinese become savvy at stock management; evidenced by the port inventory declines. 

Mick Davies's X2 Resources (X2) may come to Vale's assistance by purchasing some of their Nickel assets including Sudbury Ontario (population significantly reliant on Vale's nickel). Vale would like a partner for their Nickel ops, but what price is realistic at these prices? X2 are now rumoured to be finding some debt to fund a 'certain' acquisition. Who what when isn't the question...we know what's available it's a question of timing.

The other day EMC got "almost" positive on Anglo Pacific (APF), and today, there's a proposed acquisition and placing. How this placing got away as they also announced reduction in dividend by 40% and they forget to mention that Largo Resources (TSX: LGO) (Vanadium pure play) with Iron ore credits (or lack of) helping to miss all targets, costs and we'll assume the debt can be refinanced. 

Largo's cost issues alone live little room for error. APF are interested in a 2% Royalty on, with targets missed. Thanks to Roger Bade for pointing but, once confirmed, one might need some smelling salts if you continue to hold. As discussed on EMC Largo Resources and here (Afren Favourable result & Largo Resources (Maracás).

Atb Fraser