Morning Mumble: Hanergy and the SRX anomaly

Good Morning, 

There was a good intention of covering the Hanergy debacle that's unwinding in Hong Kong, that was picked up with Mick Johnson and Gavin Jackson at the FT, Hanergy: The 10-minute trade. Those with youth on their side will remember, EMC Hanergy back in late January. 

Whether the tank is imminent or not, the positions "will" have to unwind. One suspects that there should be a very good look at the share register and also those with derivative positions. Certainly one to watch! If the valuations were LFL, then what would make Apple's recent solar acquisition, VERY cheap, or perhaps Hanergy is totally overvalued, built on a stack of cards?

It’s amusing to read Sierra Rutile (SRX) year end (2014), where its wise to consider what "focus" means in terms of "actual." SRX highlight there is "sustained focus on cost control resulted in a decrease in unit and operating cash costs". So SRX have increased sales volume, up 17% at 129,602 tonnes compared to 111,018 tonnes (2013). Revenue was down on a fall in Rutile prices near 20% but quotes by SRX at 21.6% to US$117.8 million, compared with $123.4m (2013). 

SRX inform holders that direct costs are down on various measures, "Significant reduction in unit operating costs despite the effect of inflation in certain products and services due to Ebola and lower than planned production:

• 7% reduction in direct operating cash costs¹ to US$546/tonne (2013: US$588/tonne).
• 5.4% reduction in operating cash costs³ to US$646/tonne (2013: US$683/tonne).
• 10.5% reduction in all-in cash costs⁴ to US$683/tonne (2013: US$763/tonne)."

BUT, "On an absolute basis, cost of sales were higher at US$111.3 million for the year from US$93.1 million in 2013 due to the greater volume of rutile sold, impacted by:

• increased change in inventories of finished goods of US$ 14.2 million (2013: income of US$5.3  million) due to greater volume of rutile sold; and
• an increase in depreciation charge to US$21.0 million (2013: US$17.6 million) mainly due to additional depreciation on Lanti Dry Mine assets."

[Obviously], the Group remains committed to controlling costs and continue to focus on many cost efficiency programs.

Over to SRX to cover the entire issue, "Despite a difficult market environment, sales volumes remained strong during 2014, with Sierra Rutile selling a record 129,602 tonnes of rutile and reducing inventory held to more normal levels. Demand for natural rutile was strong but also highly price-sensitive as the overall TiO2 feedstock was in surplus from an abundance of lower-grade feedstocks. This resulted in a cap on the premium customers were willing to pay for natural rutile over lower-grade products and dragged the market downwards overall, with average realised prices 21.6% lower for 2014 than 2013. Consequently, despite strong sales volumes, turnover fell 5% for the year.

SRX share price had a brief recovery this time last year on the back of their news, but as covered previously, there was little in the way of a headwind to improve the outlook for SRX or Kenmare (KMR). The news does improve the prospects for the ‘on-going’ discussions between KMR and Iluka Resources.

With SRX cash declining, net debt up, one wonders if they would be wise to place a few shares before 10 pence? Net debt is now $36,436m, from $26.476m, with deferments obtained from the Government of Sierra Leon (GOSL), one hopes NED bank and GOSL won't have their patience tested. Watch for any news on Rutile, Kemnare, Iluka or a general improvement in rutile pricing. The latter improvement in pricing with the market having excessive supplies is unlikely. Jam anyone? 

On the gossip front, its alleged that Central Rand (CRND) have had a cash offer from one of their suitors for their dutch subsidiary (Obviously no more than $150M). Copper's appreciation has not gone unnoticed, nor the narrowing of the WTI / BRENT pricing and wonders would never cease, China's Oil Storage, ru here near two weeks ago (EMC Chinese Oil Storage), with the FT running yesterday with China low on crude oil storage capacity

Atb Fraser