Good Morning,
A late night for yours truly with iron ore printing cash for the obvious trades, so hand the violin over!
Vale have made a common-sense decision to save their own margins in the Q1 production update (PDF). . Vale are willing to cut production and "be flexible", albeit only at the moment. They still plan to ramp up their lower cost tonnage (circa 450+MT pa) and mothball or reduce the higher costs (targeting 2018)
The result was an obvious head wind for all the operators and also validates the EMC view that Fortescue Metals Group (FMG) sold their debt on expensive terms. The majors, despite assertions to the contrary, the majors are stuck between killing their own market and making common-sense decisions based on the market needs and becoming flexible. Vale calls this, being willing to "adjust" production volumes by circa 10%.
All the usual suspects firming up on the basis the market has applied some common-sense, save for the issues in China and the indications of their slower growth. Unfortunate timing for Atlas Iron, where the management must feel like a yoyo . The bull run as nicely continued in London this AM.
With all the majors taking the slow road on iron ore expansion, most will be revisiting their price assumptions. This has not stopped those nasty speculators and hedge funds diving on illiquid supply and propelling a commodity rush across the board. With limited immediate supplies, there's some decent money to be had, the wise will avoid being short any commodity in the current climate, save for a major disaster in demand (read as China).
First Quantum (FQM) gave an Q1 update, having near doubled since January the cream should be taken off the table. The market loves a good denial case, and FQM isn't absent of this (EMC: FQM January 2015). FQM remains compliant with all finance covenants under the Financing Agreements and expects to remain so in the future. They simply moved the goal posts, by agreeing a change to the net debt to EBITDA covenants.
If one was to apply a realistic valuation of the equity in FQMs businesses, the debt to equity percentage surges to near 110% (Assumptions based on the annual report 2014 and net debt increasing circa 400M debt increase). The Zambian corporate tax and mining royalty regime for Q3, (effective from 1st July 2015) will not assist the bottom line, but they do have a friendly banking/lending syndicate (currently.). FQM is likely to benefit from the continued strength across all commodities (the speculation). So it was rude not to close all positions long and awaiting further indicators.
A decent result for Pure Wafer (PUR) with the insurance settlement coming in to push the stock. There are no regrets in taking profits and / or selling on the basis of director share sales, well done to those that held for 12+ months! (Rob). It puts the company on a firmer footing without a doubt.
Atb Fraser
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