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
Fraser- not sure if you have seen this but it could be headed up "it never rains but it pours" Im sure- poor old AFR....
ReplyDeletehttp://www.oilbarrel.com/2015/02/12/taipan-resources-seeks-us10-million-in-damages-from-afren/
Cheers. The Leggie
Fraser- As likely, SHFT have put out their "no one will fund us" RNS so that's that and the end of SHFT puns, which is a shame--
ReplyDeletehttp://www.investegate.co.uk/shaft-sinker-hdg-plc--shft-/rns/update-on-funding/201502131232468914E/
Cheers. The Leggie