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?