Morning Mumble: Chinese unemployment on the rise, BLT's delayed bad news & Anto & Rio's Mo (no I've not lost it).

Good Morning,

China's unemployment figures are on the rise. It’s an open secret that people are out of work or 'job sharing' until they find something else. With the change in school rules for migrant workers in municipals it’s harder a choice for families. Left with a choice sending children back to the country for education, where often there's little resources or educating privately.

With amusement, both the SHCOMP (currently 3,803.4600) and SZCOMP (2062.8640) are holding steady. The only buyers appear to be those with Government funds or backing. The news is all positive for the likes of media with little mention of anything regarding a "contraction of liquidity" of any form. China have got a rare opportunity to blame the lack of GDP growth on the stockmarket manipulation causing a slowdown, the seeds are already being sown.

We had some significant news out with BHP Billiton's (BLT) write-down after the onshore asset review and today's Rio Tinto's (RIO) Q2 operations update/review. BLT's review will be bite-sized, for the market to ignore the greater woes. The onshore asset review should have been announced on the 25th August (date for diary) with all the "others." However, the market shall carry on obliviously ignorant to what will not be a pretty review. Save of course for a remarkable uptick in commodities.

Rio on the other hand have forgotten to mention to the market about near 14% increase in copper production costs.  Due to molybdenum (Mo) having a serious decline since January of epic proportions any by-product cash cost credits are limited. One would have a thought with Mo being of such a benefit to the bottom line costs of copper via by-product credits, they'd have given Mo a cursory mention. Antofagasta are not absent of these woes, making up near the same Mo by-product benefit to cash costs. Can it be viable to produce MO at the current prices?

Rio also had revisions to guidance for Iron Ore (weather related), Uranium (decline grades) and titanium dioxide slag. With Energy Resources of Australia’s (ASX: ERA) lower mill head grade and recovery impacting on processed ore, it’s not the only problem there with a writedown expected in the interims. Rössing’s grades are recovering from comparative quarter weakness, but being in Namibia there’s no mention of taxation woes at a corporate level.

One could argue it was in Rio’s interests to not “force” the weather, supporting some sensibility in iron ore prices. Things are not going well at Bingham (EMC: Bingham) Over to Rio,

Kennecott Utah Copper

Mined copper production for the first half was significantly lower than the same period of 2014 due to the current focus on de-weighting and de-watering the east wall of Bingham Canyon which is expected to continue in the second half.

Lower mine production, partly mitigated by a drawdown of inventory, resulted in first half refined production being significantly lower than in the same period of 2014. To optimise smelter utilisation Kennecott continues to toll third party concentrate, with 166 thousand tonnes of concentrate received and smelted in the first half. This is excluded from reported production figures.

There’s also no mention of a possible insurance claim in respect of Bingham…Escondida (Chile) is also suffering from water availability and which will be made worse by the decline in grades. Will Rio be forced into using desalination and what are the impacts for Iodine producers? Piping water from the coast could be costly. All dwarfed in-part by the ramp up at Oyu Tolgoi which as always raises the question of when Rio will take out Turquoise Hill Resources (TSX: TRQ).

Rio should have a rerating here, based on cashflow rather than the aspirations of a growing super-mining, now under-review. Limited upside of growth, more so evidence of a cashflow star that the market, if they have to hug one stock may be wise to do so with Rio? Under-review.

We have had Iofina (IOF) offer up another smoke and mirrors piece to the market with a Corporate & Trading Update. Is it beyond sensibility why the shareholders were not updated on the cash position of the company? EMC: Iofina Cashflow absent. Over to Iofina, The Board is delighted to report that the Company was EBITDA positive in H1 2015. The company has debt, whether they’re supportive or not, any hope of the convertible element kicking in is but a mere distant memory.

Likewise, IOF debt holders will want a ‘sweetener’ in the event of any debt renegotiations.  Whether this company is scaling up is immaterial to the cash balance. Ironically, having spoken with Hugo, the technical wizard believes Iofina could see some upward pressure but too early to say, personally I don’t think so.

If one applies a sensible correlation between a different sector, say Iron Ore with comparatives between Atlas Iron (ASX: AGO) (as Iofina) and Rio Tinto (Rio) as (Sociedad Química y Minera/NYSE: SQM), its easy to explain the iodine price woes. With producers having rushed into the space and global demand declining, it’s no wonder Iodine has performed like it has (almost identical to iron Ore).

Iofina, having been a favoured play here, selling £2+, is now a leveraged model on Iodine. In the absence of any improvements in Iodine prices or sales by IOF, expect an identical replica to Atlas. The only caveat being the event risk of SQM et al seeing some longer potential for the IOF tech. Although, considering the peak demand in Japan post Fukushima, the market didn’t get the continued return they had hoped for in pricing.

Ironically, a chap noticed whilst in Japan when iodine prices increased significantly, consumers switched to seaweed. Although this won’t explain the large decline in price on its own, it rather does make one consider the alternative risks, same for televisions.

It would be rude not to cover Rurelec (RUR), having only recently be upgraded from the (EMC) Jam Tomorrow Award , they now gain the full (EMC) "destroyer of any value for shareholders award."  With a good kicking at the AGM. It’s no wonder the short-term loan facility requires clarification. It would appear that Sterling Trust Limited have grown tired of the shambles, and are now likely to want to attempt to recover some of their monies, if at all possible.

There is a question about why Peter Earl resigned, and left with ‘an asset’ that was meant to improve the global footprint of Rurelec but now “spun out” to save costs. The AGM announcement was insulting left until 4:30pm despite it taking place at 10:30am in the day. Perhaps Colin Emson needed to find the password? If you’re still a holder, perhaps it’s time to revisit your investing values?

Anglo American’s (AAL) Q2 Production Report makes for a compelling read of the realities facing the company, with write-downs now expected in the interims. Sadly for Anglo there were insufficient positives to make the proverbial “sandwich” of good news, bad news, and good news.

With AAL now stretching the facts to consider their situation unique to one annus horribilis. If ever there was a cursory reminder of crap. Simply, there is no reason whatsoever why I should change my view from 2011. Despite challenges to my view point over near four years, this company is in need of a complete corporate overhaul.

Investors would be wise to apply a barge pole unless they enjoy a gambling like thrill on AAL. The two positives are marred with bad news, platinum being compared to a previous strike quarter and thermal coal prices on decline (post Japanese contract settlements). Had there been time, AAL’s news is worthy of a biblical length comment on the woes of all operations. Over to the city, to now realise the train-wreck…no doubt totally ignored one cannot turn a blind eye for ever.

Like Rio Tinto, Anglo are suffering the water shortages woes now (in Los Bronces) where water managing is becoming a skill. Overall made worse by the “speed” (stability restrictions) places on Collahuasi avoid vibrations on two processing lines.

Water appears to be the norm for operating in environments where there is an ambundance of copper. To keep it simple, whether Anglo’s production is in line with guidance or not, production declines will not be helpful whilst commodity prices are under pressure. Any one would think Anglo were writing the news for a “bull cycle” of commodity super prices.

On a more positive note, EMED Mining (EMED) finally got their municipal activity licence. With production due end of Q3 2015, EMED should have some form of rerating. One disappointing factor for EMED will be their profit. Since overcoming significant hurdles to develop Proyecto Riotinto, it’s unlikely the current copper price will have an impact on the viability. What may do is any “leverage” that may be considered. Having been a buyer until recently, there’s some decent potential, but do not get too carried away with expectation.

A very interesting meeting with a plant engineer whom knows about Wolf Minerals (WLFE) and the plant they’re using. In order to save a few $$ they elected to go for a different kit which would not only reduce costs but also improve efficiencies.

Normal service perhaps next week! Poor old Petroceltic (PCI), where Worldview there appears to be a repeat of recent events. Are Worldview intent on damage the company to the point it becomes uninvestable then buy it on the cheap? Surely not…

Luckily for Zincox (ZOX) the SP rose sufficiently to lock in a few punters with a placing  that’s allegedly going to improve performance. Previously it was coating the inner shells of the heat exchanger, now its debottlenecking supply and replacing said heat exchangers. What is of concern is the “lack of domestic EAFD (Electric Arc Furnace Dust) that might just be essential to operations!

What ZOX responsibly mentions is the critical need of the EAFD. With a rise in Zinc prices likely with a contraction in supply, how are ZOX going to manage this. Crucial, the competition for EAFD has not “hotted” up yet, but will do towards the end of the year and ZOX already cannot manage supply. So how are they going to cope with increased competition?  

More so, with the woes of the heat exchangers they’re now replacing them. Please note the utilisation of the word “troublesome equipment” within the RNS. With an absence of EAFD, how are ZOX going to convince third party funders of the “future” potential.

Either this company is totally under-priced or the realities of ZOX’s promises are telling a different story. Within the RNS there’s hopes for $40M EBITDA plant with an inference that the mechanics of the RCF process/plant is proven. Strangely similar to other companies able to “demonstrate” a proven technique. With support likely around the 12 pence market until a joint venture in conjunction with bank financing?

The question of the week, how much floating storage do Iran have….

Atb Fraser