Morning Mumble: Turning Japanese - FT, Anglo and Lonmin: Yuck.

Good Morning,

Importantly for everyone that reads the pink pages (via whatever medium), the FT is Turning Japanese. Amusingly, being well off the mark thinking it was Reuters, four city folk were bang on the money. The concern being, that it was never suggested that to gain entry to the city trading houses, one had to know the lyrics and Turning Japanese as a desktop short-cut. We'll remain silent on what that infers for those in city! Whatever next...

After enquiries about IT errors and the like, as a reminder this is a channel for views, pending time. 

It is appreciative that people source the views, whether they agree with them or not, it's a pleasure to read people disagreeing without referring to status or position with insulting terms. With apologies being accepted, and thank you for them, its time to look forward. Perhaps, the EMC will not be a dirty secret of a reference point in future, before penning ones analysis. 

Fear not though, there's a suspicion we shall disagree, but now with a mutual respect. We'll see how it goes this afternoon, meeting with a city chap whose views have differed slightly to here. Especially on copper, iron ore, nickel and zinc. Who picks up the tab is another story and will there be a bun fight!?

On to the carnage from of the market Lonmin (LMI), whom cut this, reduce this, care and maintenance (C&M) that and look for further savings. If someone has not thought of it already, perhaps shutting up shop would support the entire industry. There cannot be much more to cut can there? LMI have been sensible in placing those operations on C&M with least initial cost (contractor mining). How LMI can make money including financing costs etc...at anything below 1185 (under review as well), is anyone's guessing. 

LMI's Q3 2015 Production update is woeful on all levels. With the management now "defending" the value of shareholders. Had this come in 2011 then perhaps we'd have been discussing something very different. LMI is a prime example of inefficiency whilst attempting efficiency. So, without pulling apart the numbers, its fair to say LMI are paying the market to produce PGM's. 

As mentioned in, EMC: Kumba Iron ore one suspect there's going to be an increase in Lost Time Injury Frequency Rate (LTIFR). Sadly LMI workers have been impacted by this as well, with cost cuttings all round, there's a difficult balance between profitability, productivity and viability. Sympathy to the families involved. 

Some contradictory statements, but over to LMI refinancing

We are reviewing the appropriate capital structure for the Company in the new pricing environment as we consider the need to re-finance our debt facilities. The Board is considering the full range of options available to secure long term capital and expects to update the market by the time of our full year results in November 2015.

If any financial institution will stump up (via refinancing) any monies (debt) without a commitment from shareholders, they'll be brave. 

Lonmin Chief Executive Ben Magara said:

"Lonmin is defending value for all stakeholders in responding to the platinum pricing crisis by taking swift, decisive even though difficult measures. Losing jobs is not pleasant but everyone is having to take significant short term pain to preserve optionality for the long term. All costs have to be reduced including labour and I hope our formal consultation process will come up with mitigations to minimise job losses.‎"

Ben's got his hands full, with a growing discontent in South Africa, it's not going to be easy to "minimise" job losses. With the number of unprofitable operations, it’s hard to minimise what needs C&M on a grand scale. LMI, in my view, is not going a concern. The surplus in the global PGM industry (far from assisted by Russia) will make it difficult to justify any investment. If one hasn't noticed already, in the absence of a Chinese aid package (and its being touted), opps one means investment, LMI is destined for AIM at the very best. 

In summary, to go long, without acknowledging all the geo-political, economic and commodity related woes, would require one’s head being looked at. Good luck to those on any form of book build. The facts are clear, even with yet more cash, will it resolve LMI's profitability? Yes, but only if operations are shrunk to an AIM sized entity. 

Continuing in the same vein, we have Anglo America (AAL) reporting H1 results today. Handily, if we do a quick copy and paste from LMI, with the addition of "impairments, write-downs and flog this and flog that" its makes life easier. So, AAL, whom cut this, reduce this, flog this, care and maintenance (C&M) that and look for further savings here and there, are not in the same boat, but it looks like the same boat race. 

We'll summarise quickly with net debt up at a staggering $625 million to $13,496 million and a loss reported for the entire year. Admittedly, there's post-period receipts for the sale of the Tarmac division of $1.6B, which are being applied to debt (like they had a choice). 

If anyone ever speaks to AAL anymore, could they be so kind as to ask them to bump up the P&L reporting to near the top of the page. As a few savvy analysts have realised it's stashed down the pile. 

So AAL have....Commodity price-driven impairments of $3.5 billion after tax, including $2.9 billion at Minas-Rio. Productivity improvements and indirect and capital cost reductions accelerated, with disposals being progressed. 

AAL have very wisely spotted that iron ore is at a cross-roads. With higher cost producers disappearing from the market, these have been replaced by newer lower cost producers. Kumba's lack of dividend is going to exponentially hurt AAL, nevermind the Exarro Resources woes. 

De Beer's couldn't even save the day this year compared to last, "De Beers saw a continuation of the market weakness of late 2014 during the first six months of 2015, resulting in a 25% underlying EBIT decrease. In response to these market conditions, the business has revised production guidance for 2015 to 29 to 31 million carats, while continuing to focus on its operational metrics. De Beers also reduced unit costs by 10% in dollar terms. Read across to smaller producers...

Why AAL is up on anything but the dividend today is a mystery, and that is questionable why it's being paid. The Dividend can only be paid on the assumption of sales receipts from other assets, failing this they'll have to scrap it. This questions the sensibility of such a policy rather than improve the balance sheet. We'll leave the summary to, at 30 June 2015, Anglo American's ratings were Moody's Baa2 (negative outlook) and Standard & Poor's BBB- (stable outlook).

Question of the day, were RIO/BLT were wise to machine gun their way to capacity just to survive? An example being Roy Hill, with Gina Rinehart continuing unabated despite some issues with the family trust that may or may not need resolving. 

Maybe more time later, although that's becoming a reoccurring theme.  

Atb Fraser