Morning Mumble: China + Gold...AAL's / JSE: AMS hand count of PGM's. Rambler's talking of expansion! + RUR's default.

Good Morning, Forgot to press publish this morning, Good Afternoon,

It’s hard to start this morning due to there being so much to cover and little time. 

Everything is going on in China, on the stock market, in the economy and the slowdown in development (read as reducing investment). How's that for economic analysis?! In essence there is no fiscal policy that will not be considered by China to maintain the economy.  

The long fated transfer of wealth between Government and citizen/comrade has now stalled, including the Chinese people's investment in mainland China generally. With monetary outflows from China increasing both directly and via the Shanghai-Hong Kong Stock Connect, the Government is left having to fill the void/gaping hole. Orders are on the increase from mainland China to the Honk Kong (Southbound), where the mature market is allegedly benefiting from greater disclosure and transparency. 

With China catching a cold, those Asian trading partners (south-south trade) are under pressure. What this means for those recently listed, including Alibaba (NYSE: BABA), is yet to be fully determined. BABA will not be exempt from reduced ordering and trade efficiencies that are put in place (read as reduced wastage).  Also likely to have a knock on for Standard Chartered (STAN), whose capital requirement rumours are being raised again, after today's new management changes. How much does STAN need? Although more recently STAN have developed a conservative approach to lending.

Often when looking at the realistic view of China, people mistake negativity or a lack of positives as being the end of the world, rather than resetting expectations. Some brokers, whom were so bullish when attending Camp AV last year (2014) are now reassessing their position on China. One would be wise to consider the notes from Aviate et al (China once upon a time bull's), and look how it’s turned out in 13 short months in comparison to the bullish predictions. 

The drop in construction both residential and commercial, has serious implications for the Chinese economy, throughout the entire supply chain both materials and labour. Factories’ own inventory levels are rising, not helped by lower gate prices. Steel mills producing above and beyond demand but "committed" to certain higher cost Government obligations or funding gets withdrawn. 

Precious Metals are all under pressure (EMC: Gold the “bears” will have this market for longer), the falls in Asia one suspects are a result of a certain trader cashing in their chips. 

Gold: $1116/oz (had been as low as $1080/oz. as knife catchers entered the market). 

Silver: $14.80/oz (had been as low as $14.55/oz.)

Platinum: $980/oz. (had been as low as $970/oz.)

Palladium: $605/oz (previously touched $600/oz.)

Copper: $2.4650/lb 

China is giving an appearance of confidence, with their stock market measures attempting to entice the public to buy into the story. Having committed near $200b of funds in a month or so to margin/equity, its merely propped up the fall. Whilst holding fire on a further $275B worth of equity rescue, (Bloomberg: China Securities Finance Corp ($483B) funding to imply support.

China's latest vote was to release its gold figures. Not only did this conveniently happen on Friday with near 1,658 metric tons of gold under the security of PBoC (remember that phrase it may be important). We'll ignore why China hasn't released any gold figures for near 5 years, and leave that for the conspiracy theorists that make little money. What is important though is the disclosure for the purpose of the IMF (International Monetary Fund) SDR (Special Drawing Rights) for the Yuan. Expect a revision upwards of Gold holdings in due course from China. 

In entire contradiction, the crash in Gold. Another Fund having a coup on the Shanghai Gold Exchange catching most off guard. Whether the seller had other obligations that prompted the sale, is immaterial to the action of resetting the pricing a la Copper (14th January 2015), in addition to shorting Gold. Selling 160K ounces is not to be sniffed at, especially during such quiet trade and limited volumes. What are the implications for CitiGroup who’s trading in precious metals has near quintupled in 4 short months with around $45-50B exposure.

On to the market, Anglo American Platinum Earnings Reconciliation by Anglo American, is almost laughable. It raises significant questions over how Anglo Plat's recognising its inventory. After, a physical count of in-process metals (in the ordinary course of business) resulted in the Company increasing its estimate of the quantity of inventory by an additional c.130koz of platinum and 75koz of palladium. Source: Anglo American Platinum Interim Report Anglo Platinum (JSE: AMS). AMS already down 4% from opening. 

From Anglo Plats ...continues with the repositioning to create a high quality asset portfolio, with low cost and high margin production, low safety risk and high mechanisation potential. The assets that do not form part of the retained portfolio are part of the disposal program. 

If anyone is minded, could they pleased identify the "high quality assets" to save significant investigation time. At current prices, the read across to all the producers with platinum at $980/oz. isn't looking great, Lonmin must have near 6 months before the desperation of cash comes to the fore, if it hasn't already. 

Rambler Metals and Mining (RMM) Pre-feasibility Study has a number of assumption in it, although better than some! RMM, Average copper price of USD $2.79 per pound, gold price of USD $1,100 per ounce and silver of USD $15.54 per ounce. Long term pricing of USD $2.79 per pound, $1075 per ounce and $15.50 per ounce for copper, gold and silver respectively. 

RMM hopes to fund most of it from bulk mining Footwall Zone (LFZ), which is allegedly self-funding from current operations (Circa $66M). Even so, there's a capital short-fall of near $9M and assessing possible debt fundraising has been initiated. The funding plan does not make economic sense on the 5 year plan. With more risks created by the self-funding rate over 5 years. Debt-financing alone does not stack up, especially in the current environment so will there be a % of equity dilution/warrants or associated kickers to entice the backers. 

Having not covered RMM since EMC: RMM 9th December 2014. With the denial contingent still suggesting things can get better. One has to question how much of the cashflow supports financing at current prices. This is likely to be RMM's last chance, in the absence of a rebound in RMM's produced commodities, there's a requirement for cash for this expansion. With a modest improvement in grades more recently, RMM are likely to be able to "sell the story." Any purchases would only be high risk speculation in the current market.

More news for Rurelec (RUR) today that was missing two little words in the title, "loan default." RUR announce the appointment of directors, but update on the default that has taken place. Expect a roller-coaster of a ride for anyone still holding! 

Atb Fraser