Good Morning,
It’s been a long day already with limited sleep due to the
antic on the ASX and Iron Ore. Those on the morning ring round appeared
positioned well on Iron Ore and on the ASX (Namely Fortescue Metals Group). The
market (sell side) is making hay whilst the sun shines. Iron Ore has limited
support with risks being put on increasing production and declining demand
(echoes of old). So with that, all the iron ore stocks softened up.
Rio's risk is losing support as Vale's deals with China put
pressure on their revenue, same for BLT. Rio and BLT's risks were known, with
Vale securing all the funding for S11D and the ability to market at anything
between $18.5/t and $21.25 we may be hearing a tempering of expansion plans for
the "big boys."
It was an absolute pleasure to get an acknowledgement of the
work here from a certain analyst. It’s pleasing when those disagreeing and
criticising come round to acknowledge just a fraction of what goes on behind the
scenes. It shall be framed and pinned to the wall, a welcome sign the market is
acknowledging not only the amateurs but a more conservative expectation of
events and performance. Thank you sincerely.
With Vale being just off it’s more recent lows and the
lowest to my knowledge for near 10 years, its going to get some revisions. As a
higher cost producer, Vale's decline has been warranted, with a management of
costs that questions some projects. Its time to consider there being greater
upside than down. S11D is due online later next year, and with that one expects
some buying into the potential recovery of the company. With that it’s the
first time in near 3 years there has not been a short position(s) on Vale.
China has been playing with the margin requirements and
leverage for "betting" on the indices (Shanghai Composite Index Stock
& Shenzhen Stock Exchange Composite Index (SZCOMP)). Conversely
tinkering with the very limits they put in place to protect excess
speculation.
Chinese “Regulator” (China Securities Regulatory Commission
(CSRC)), has now proposed an increase in margined trading, yes contra to
previously policies. The Chinese are knee-jerk in an attempt to maintain a
disorderly orderly market propped up my speculation. Bailing out a raft of
speculators that are in the crapper with ZERO, if not negative gains, for near
14 months.
As was covered here (and
only here (EMC)) the issue is the margin (Pandora’s Box) itself that now
appears to have been opened by CSRC and the Government. Not the market
manipulation that has been alleged by the Chinese Government, encouraging
pro-speculation upon growth, the time is now etc…etc…Likewise, the legalising
of Pension funds to buy equities in addition to Government agencies now
entering the market.
The Chinese government, via related entities and with the
assistance of CSRC, was (EMC view) actively buying into near 35 stocks just
before the bell, prompting a recovery and in some a rally.
If ever there was manipulation, the Chinese should look in
their own back yard. IPO’s encouraged to be so stupidly priced, every man and
his dog has a slice of the action. As Li put it, its “easy” to have 10+
trading accounts now and more if you go to the “unregulated” market, where
leverage is so extreme people are at risk of losing everything or more.
With the PBOC (Peoples’ Bank of China) having lowered the
reserved rate ratios of the banks, the CSRC have followed suit, lowering the
ratio so speculators can leverage more against the same amount. Worse, contrary
to the previous assertions by the CSRC of enforcing a more sensible approach of
restricting the rolling of positions. The CSRC is now allowing the very brokers
they gave a proverbial slap to, to do what they did previously. Roll them over,
in some cases, state entities are providing liquidity and securitisation to
enable this.
To spread the risk further, which is perverse, the CSRC is
proposing every man and his dog arm themselves with a margined trading account.
Having previously been restricted to those with “cash” (there’s a way round
this) of circa $75-105K, it’s now open to everyone.
The CSRC knee-jerking one wouldn’t expect much more needed
to resolve this bear market. However SHCOMP and SZCOMP have decided to cut all
their fees. Promoting speculation on the crap as well. We can but breathe a
sigh of relief it’s not just on AIM crap rises but now SHCOMP/SZCOMP where Co’s
with limited potential, little hope and worse massive liabilities are stupidly
valued. If one doesn't fall in line and "just buy", we'll investigate
market manipulation, oops
too late! (BBC Link).
On the AIM, Central Asia Metals (CAML) gave an up on Kounrad Production, post the leak of organic
inventory or as they are now calling it a mechanical incident. Here we
expected and still maintain a target of 11,700/t for the year (EMC) rather than the 12K/t
guidance today. For those thinking this is being a little hard, its still above
the 11.1K achieved in 2014. The market has acknowledged this.
No time to cover Glencore in Iran or Graphite, but the
latter we shall return to both, in addition to Gold. As today is full of
compliments, it’s a pleasure to hear from those whom managed to save a few quid
in CIC Gold Grp (CICG)! Not to be confused with Conygar Inv (CIC), whom are an
entirely different company with assets and cash!!!! Christmas for Zoopla (ZPLA) and AO World, more needed.
Atb Fraser
Hi Fraser- nice call re CAML- you wont be far off at 11,700 albeit they will now bust a gut to exceed the new 12,000 forecast you can bet. My humble estimate is 12,500- lets see. They have come back to the mkt quickly given that the leak was only a week ago and they have solutions and timescales in the public domain already, which reinforces my view that they are a top draw mgmt. team. Its v easy to manage when everything is working, this is their first production issue that I can see and they have jumped on it v quickly. Many wouldn't have put down their bottles of whisky at this stage.
ReplyDeleteRe Fortescue Metals- not one I follow directly, but they are the company that the SXX key board members formed and grew. It is the firing line re the iron ore war at present, not an easy place as the big boys throw their punches and the Chinese benefit overall. I bet SXX hope they don't walk into such levels of competition in the polyhalite field, they v clearly undercut potash producers on cost and in some crops on yield and gross returns for the farmers too. The SXX boys famously used a $2bn high yield bond (known as junk to Fraser et al) to do their capex, they are all ex Citibank as they have the knowledge and contacts in this field, albeit raising cash for mining capex in mega projects like York Potash isn't as easy now as it was then. They hit the streets with their project update and timescales next week, and it will be v interesting to see what they say about finance.
Cheers. The Leggie
I will be very surprised by the loss of inventory, if they can achieve above today's estimated but feel I'd only be splitting hairs on the overall positives, despite a negative. It is a cursory lesson to CAML not to get distracted by other projects and take their eye of the ball. If another event occurs, I'd be a staunch seller...Strike Two for CAML. One was the director sales, to the "leak" otherwise known as the mechanical issues.
DeleteFMG, has a number of woes, something that's losing support on the ASX.
Potash I'm going to have a butchers at, as I have to wonder, if food deflation persists what the price will go to. SXX have the advantage (for now), as costs could rise significantly.
Cheers F
Fraser- Re SXX- polyhalite will in part be muscling into the 72mtpa potash market. If they hit 6.5mt in 2022 (first prod in 2020) and then move on to 13mtpa in 2025, they will have a major stake in the global market, which may have expanded over that decade but it will no doubt put a further squeeze on the higher cost potash guys. So it makes them a target, either to slow the process or mothball, given the huge price differences between poly4 ($130 mid against $110 low and $150 high) and traditional potash at $307. I know poly4 will only be used re certain crops, but some are v major crops indeed. I wonder if anyone has a $1bn offer in draft- I would look at it if I was one of the majors in this field, but perhaps Im assuming the financing is going to get away if they don't get taken out.
DeleteCheers. The Leggie