Morning Mumble: Disclaimer, Scotgold Resources (SQZ), Anglo Asian Mining (AAZ)

Good Morning,

The past few days have been rather silent, for a number of reasons. It’s best if readers see the disclaimer, which is already covered by Google's "disclaimer about content." In the event parties disagree with the disclaimer either of EMC or Google then they should close the webpage and not return.

SGZ came out with a resource upgrade on their Cononish Gold Project (in Scotland not as some think Ireland or Cornwall). SGZ have increased their resources by revising their Mine Development Plan, en par to a Prefeasibility Study. One got all excited about the announcement and share price to look for the borrow to short, sadly there's zip! Even retailer spread bet firms couldn't/wouldn't! Although it was intraday greed! Purely on a belief of an unjustifiable appreciation in the SP, normality has since returned.

Anglo Asian Mining final results, continuing on from the director loan from EMC 22nd May 2015 Director Loan AAZ's going concern is a tricky statement. Its common-sense the AAZ's forecasted cash position and ability to repay debt have a number of assumptions. 

•  Achieving the forecast production of its gold production operations, principally its heap and agitation leaching; [Also an assumption about grades and recovery should be considered].

•  its gold price assumption; and [it’s difficult to validate that gold price assumptions as the all in associated costs per ounce appears absent].

• the small scale flotation plant being commissioned on time and achieving its planned performance. [Crucial].

Bold is EMC not AAZ!

With some sensible rearrangements in the debt repayment to the Bank of Azerbaijan (IBA) it is a going concern. With cash at the end of the year at less than the price of a semi in London, it’s no wonder the director loan was organised, and in hindsight, one could have argued a higher % should have been charged.

One doesn't envy AAZ if their grades drop below 3g/t as costs will increase and thus impact on cash flow. Personally, AAZ require circa $10M in capital to improve the balance sheet, and in an ideal world $20M would be welcome. The leveraged play at the current levels means they can survive as long as IBA are willing participants. 

EMC estimated of cash costs were a little conservative at near $945/oz AAZ have come in at $971/oz. Simply put, it’s not without its risks, if one assumes they can continue with grades above 3g/t, keep cash flow positive, floatation plant on time, budget and working properly, improving recoveries, oh and the gold price remaining stable. Please remember, every Chinese person and their dog is favouring equities (no doubt leveraged) over gold and increased supply in the gold market. It doesn't sound that great, especially with net debt of $52.4 million.

Kingfisher (KGF) came out with Q1 trading statement. No change in sentiment here, one just needs the buyback to end and the realities of poor trading and conditions in France (the acquisition or lack of may have been very fortunate to KGF). 

Screwfix are still cannibalising revenue from B&Q, one wonders whether KGF would be better shrinking B&Q stores and farming space out to other providers whom don't duplicate the offering. Perhaps something for supermarkets to consider or...car sales or similar? Gyms? This would maintain Screwfix in growth and costs seem to be easier to control and traction in the market making it the shining star. 

KGF are quick to point out about margin improvements, although on the comparative period this would not be hard! UK gross margins up 90 basis points reflecting weak comparatives (-210 basis points Q1 2014/15) due to more promotionally-led showroom sales last year. 

One has to wonder whether KGF's costs focus is something they shouldn't be echoing to the market, more so maintaining efficiencies. Costs benefited from on-going productivity initiatives offset by phasing of marketing costs. Could Kingfisher benefit by cancelling their over 50's discount scheme that appears not to be abused by anyone whom can grab a granny/granddad. It does not promote loyalty, it just promotes abuse of the system! 

Its somewhat hilarious commentators and the press are suggesting the handyman is driving sales with a belief all these workmen are disappearing off to Screwfix. Having been in a Screwfix recently, its surprising the lack of trade, although Screwfix are enticing trade with free tea and coffee when picking up goods. 

Simply, the punters have realised the catalogue model is easier, you don't have to walk round a huge great bloody warehouse to then ask where such and such valve is. For heavy materials or plants there's a difference, simply put, for tools and "Screwfix's" key market, you're better off getting someone else to get locate and organise your order for no charge. 

Screwfix simply meets the three C's of Convenience, Consolidation and Conservation of time, in terms of marketing. As always, ones very foolish to bet against share buybacks. Today was merely aiding closing the longs as the market laps up the premium applied to the buyback that in reality shouldn't purchase any stock above 325 pence. 

Iofina (IOF) popped their final results out yesterday. There's a big difference between positive EBITDA and operating profits. Global iodine prices have continued to be under pressure, we'll ignore SQM (Sociedad Quimica y Minera S.A) issues as such, on the basis they have a very different balance sheet and muppets seem to think it’s relevant. So save for comparing margins or performance within sector the EBITDA figure (or lack of) is like a chocolate teapot for a developing company.

Iofina hope by 06th June they should be in a position to update fully on the Atlantis Water Depot Project. With a high probability of being granted the permit, it would be rude not to have some binary money on the possibility for high risk exposure, although IOF's downside may deter some speculators! 

We'll leave Iofina to summarise their accounts, record revenue, record loss...hmmm

Atb Fraser