PM Bolt-On: Nae bad, as the Scotsman would have you believe at BHP Billiton (BLT)...and some. Come on the cheap money, lance it...!

Good Evening,

Due to the asx, one forgot to press publish.

As of last night, the themes were remarkably predictable thanks in part to the S32 interims (Short 32). BLT's expectations and the marked denial were evidenced in the webcast and the consensus. More on this in due course, as a teaser, could there be a capex issue for short32?

BHP Billiton's (BLT) webcast and presentation gave nothing more away that wasn't contained in the year end results. Despite being pressed on BLT’s expectations of commodity prices a number of times, Andrew Mackenzie elected to avoid answering. This has wider implications for those that believe it's down to the analysts to cover those assumptions (dig). Talk about horse and cart scenario, we expect to "do this" but we aren't going to tell the market the prices or assumptions we base these on. Although, notably, their assumptions by EMC estimates are "about the price" now. 

BLT are in a more privileged position than the likes of (Anto-f-ghastly) but not without risks. Not only are they on the lookout for a $6-$10B acquisition (my estimates), but their current gearing/leverage is better than most, albeit could be better (post further writedowns). BLT asserts they are determined to make projects workable/profitable at current prices, rather than the tone of "care and maintenance” other entities have suggested.

There appears to be some irregularities in the CAPEX and guidance given, a near $1.5B  difference in 6 months, which Andrew was pressed on not once but twice. Andrew wanted to take "this offline" to clarify the items. One wonders, whether these "offline discussions" will make it into the public domain, as it has some significance. From $12.5B to the quoted $11B today (for 2015) is concerning. As one analyst questioned, did they simply stop spending for 6 weeks. 

Whatever way the cat is skinned, BLT cannot maintain the dividend commitment without an improvement in cashflow via a) an increase in commodity prices, b) improvement in costs (that are entirely absent of an "all in associated costs basis,” but hey lets ignore this) c) reducing capex, including sustaining capex and finally, d) assuming the sustaining capital costs can be managed at circa $5/t they need to achieve an OPEX of $15/t. We'll be back to this in due course, because one suspects it's overly optimistic.

The elephant in the room went unanswered, namely taxation. Yes, this was ignored by pretty much everyone, taxation liability. BLT announced the woes of taxation only a week ago. If one was to break down the cost per employee, one has to wonder what the level of profitability is for Singapore worker compared to those in Australia. We are of course not suggesting the Australian Government are not considering this (‘onest gov).

Over to BLT, "almost 100 per cent of the profit from the sale of Australian commodities, from mine to customer, is subject to Australian tax – totalling $8.7 billion in taxes and royalties in Australia in the 2014 financial year." Really?...

BLT's figures were better than envisaged (EMC), but below consensus. BLT will have the same currency beneficiation that marginal producers will have to enable an improvement in OPEX costs, albeit with asset writedowns.

Regular readers will note the views here of the FX AUD trades, as the favoured currency play. Although it’s sensible to consider the implications of Saudi Riyal and the U$D peg. Those complacent marginal traders surely don't want another CHF debacle? Do they? 

There couldn't be more noise made about the "simplification premium" if they had tried. However, when pushed on it, one couldn't help but wonder if Andrew/BLT really meant was the ‘board’ has an inability to multitask (& perhaps some analysts). When pushed on it, to expand on the meaning of simplification, it didn't have the same dramatic effect that the term hoped to embrace. In essence, the board got rid of a short (Short32/South32: EMC call), to enable a focus on "three pillars." (EMC term now).

Without wanting to do a pseudo-analysis of the results, it comes down to earnings. These are guaranteed to fall for the next financial year, save for some act of god (Chinese mega-stimulus). BLT’s sensitivity to sustain operating profitability (P+ve cashflow); namely iron ore, oil and copper, doesn't bode well. 

There are challenges to the guidance given today, in light of the current outlook for “the three pillars” (as one cannot mention the other). Quite how the market expects BLT to perform, isn't so much a mystery, but more so reliance on a recovery of the three of the pillars. We’ll ignore the bauxite/Aluminium issues presented by Dupre Analytics, but the significance should at least acknowledged. Hat-tip on some significant work there and one suspect there’s “more to come on other Chinese entities.”

Oil's decline is likely to impact around $1.65B on BLT revenues. The recent decline in steel, metallurgical coal prices and iron ore, will undoubtedly impact. Whether BLT's guidance to their iron ore costs can be achieved is another story.

Rio Tinto's (RIO) is the preferred model, with RIO leading the charge in cash cost terms. Simply, one would be sensible to factor in a cash unit cost of $16.5/t for BLT, rather than the hoped for $15/t. 

The same for the read across on copper, where Rio advised that the second half is expected to be impacted by a decline in grades and water availability (Ref: to Escondida). Although absent from the BLT today and lacking further discussion. Should we stop looking for themes in accounts and just accept what we are told? 

Longer-term, today presents an opportunity assuming there's a telescope looking past the 3.5/7 year cycles and considering the super cycle per se. It was/is an opportunity for sentiment, aided in part by the Chinese Central Bank / PBOC meddling with the liquidity.

The move was an admittance of how bad things have got, with more to come. All expected, whilst avoiding shock and ore, an RRR decline of a further 100-150bp (EMC Estimates) is required. We note the auto-leasing implications, saving the likes of Daimler/VW.

Contrary to some expectations, the EMC has a target price/range of 1350 for BLT based on today's news. If they there are currency movements in the AUD (Aussie Dollar/expected) and the Chilean Peso (CLP/also expected) and USD interest rates, then BLT are set to benefit on an operating cost level basis. For the short-termism, it was rude not to have some "on the news."

If one wants a dividend at the expense of growth (CAPEX) this is the stock. Assuming BLT avoid biting the bullet and acquire an asset in the oil and gas sector, there's limited upside (circa 35%). 

More on ANTO in due course now their cash has gone. Thoughts for the evening - what are the implications for Caterpillar in the current climate. What are the implications for the Chinese “losing their life savings?” This has more weight that most analysts give credit for….analogies to a stalling plane going virtual were made on the morning call. 

Finally, thanks in part to Li, China (the people) want an explanation for their losses. With prices high, wages low, and China aiming for 7%, we have to acknowledge GDP (we’ll call it faux-growth) is now lower. This is evidenced in part by “cheap money” being thrown at the boil, rather than lance it. Come on the cheap money...whoops, not good for Wall Street…

Atb Fraser

Morning Mumble: Inventory, How much Copper do the majors hold? VEDanta's I've tried to be positive & ANTO'fghastly buys 50% Barrick's Zaldivar

Good Morning,

What is often not considered in commodity cycles is the level of inventories. Admittedly this can act as a float and reserve. How much do the majors hold in inventories, at what price and how is hedged. We know Glencore (GLEN) had 331Kt in the year accounts for copper inventory. 

KAZ Minerals do not separate their inventory but estimates suggest a modest 27,957/t's of finished product, excluding goods in transit. KAZ, are likely to be better managed with their need for cashflow but also they have issues at the current copper price levels, paying the market near 60 cents a lb if one considers their all in costs. 

KAZ had a Q2 & H1 Update yesterday, if you're so inclined or are perhaps are one of the workers FQM are paying to twiddle their thumbs at Sentinel? 

Vedanta want you to believe they're a Nickel producer (at the moment) seeing as all other operating subsidiaries have taken a spanking on price. Over to Tom Albanese, CEO of a bunch of companies held within a complicated structure, with a hope they can get their hands on some Cairn India cash by year end:

"In Q1 we saw continued volatility in commodity prices, but Zinc has held up quite well in view of its strong fundamentals and is now the largest contributor to our EBITDA. We continue to focus on improving efficiency, costs, and enhancing production across our well-invested asset base. We have broken ground at the Gamsberg Zinc project in South Africa, improved production at Konkola mines in Zambia and remain on track to re-start iron ore production at Goa following the monsoons. Our diversified business model supported by strong operating strengths and structurally low cost assets will enable robust long term returns to stakeholders."

So, we'll focus on the good hand (Zinc) as Vedanta do not want us not look at the other hand, we'll keep it short. Vedanta have a very credible mined metal production increased of 42% to 232,162 tonnes, (Q1 2014, 163,131 tonnes), but strangely the bottom line is being punished. 

On the one hand, there's a positive production increase and costs being half decent, significant in numbers in fact, but yet at EBITDA level it’s a paltry 11%. In the absence of an accountancy qualification, is it not fair to suggest costs in the chain have risen somewhere? One has a suspicion the amendments to the Mines and Minerals Development Rights (MMDR) Act, means producers have to shovel more for the same money. 

So with taxation rates rising into 2016 as guided by the Indian Government, VED are going to have to focus further on the bottom line just to maintain existing profitability. Unless one has missed it, analysts are not factoring in the CSR Levy at 2.5%, previously 2% from memory plus the increases in corporation tax? With a campaign going on to lower the District Mineral Foundation (DMF) tax as miners in India are punished, there may be some hope. 

With a bunch of Aluminium producers campaigning for an increase in the import tax on ingots, it’s not surprising VED are are reviewing restructuring some of our high cost operations in the Aluminium segment. (Source: India worth a read with a mention of VED's subsidiary Balco). VED's aluminium contribution at EBITDA is negative. One just hopes for VED's sake there isn't a slump in Zinc prices, as it’s got a very large burden on the balance sheet currently. 

VED's net debt, only up a modest $300M. Over to VED to cover their own financial update, 

Financial Update

The Company had total cash and liquid investments of approximately US$8.2 billion and undrawn committed facilities of US$1.1 billion as at 30 June 2015. Gross debt and net debt was at US$17.0 billion and US$8.8 billion, respectively, at 30 June 2015, slightly higher than US$16.7 billion and US$8.5 billion at 31 March 2015, on account of funding for projects and higher working capital.

As at 30 June 2015, FY2016 debt maturities includes US$350 million of bank loans at Vedanta Plc for which refinancing is in place and US$ 2.1 billion of term debt at the subsidiaries, of which c.$400 mn has already been tied up and the balance is to be rolled over or refinanced through longer term debt. In FY2017, Vedanta Plc has debt maturities of US$2 billion, for which we are in an advanced stage of discussion with the banks and these are expected to be refinanced by the end of calendar year 2015, while subsidiaries have maturities of US$1.3 billion for which we are evaluating different structures and options.

Antofagasta will acquire a 50% interest in Compañia Minera Zaldívar Limitada (Zaldivar), and will become the operator of the Zaldivar copper mine. My question being, is it "expected to be immediately accretive to Antofagasta's earnings and cash flow per share."? Really? Saves Barrick (NYSE: ABX) from flogging some more of Acacia Mining! Or does it? 

The final thought goes to Syrah Resources, would you stump some cash up? 

Atb Fraser

Morning Mumble: Anto-fghastly (ANTO) & the markets alleged White Knight (NYSE: FCX) and the magical ingredients, LGO: Why I was wrong to...JKX & SLP, self-harm!

Good Morning,

Today's Q2 Production Report from Antofagasta (ANTO) gives some idea of the woes for the industry. It doesn't look great even allowing for reduction in supplies to market including the recent near 200K/t's drop in guidance from other producers, the Zambian load-shedding (EMC: Yesterday) and ANTO's own guidance revisions downwards to 665,000/t's of copper, as a result of some commissioning issues on the crusher circuit. 

Conveniently ANTO don't give their previous guidance, so here it is. For 2015, it was 710,000 tonnes of copper, 250,000 ounces of gold and 8,000 tonnes of molybdenum. Not only do they have the woes of gold prices being at lows, molybdenum price being at a level it's questionable whether it's a viable to process it, and cooper down 45,000/ts. (EMC: Rio molybdenum (Mo) woes). As a result ANTO's cash costs are on the increase due to the MO price and lower than expected production. One would have thought with the USD: Chilean Peso (CLP) strength, there would have been of greater benefit, but this will perhaps be reflected in Q3. 

Luckily for ANTO, there may be some hope for the copper price thanks to the markets white knight known as Freeport-McMoRan (NYSE: FCX). The market may think FCX's planned production and cost cut backs (FCX Site PDF) will assist the cooper market. But with the absence of a magical ingredients, prices are likely to stay lower and for longer, this time. FCX are unlikely, like Rio or BLT, to give up market share for the sake of the higher cost producers. 

Over to FCX, today announced it has undertaken a comprehensive review of its operating plans in its mining and oil and gas businesses to target significant additional reductions in capital spending and operating and administrative costs in response to weak market conditions for its major products. These plans will also incorporate potential adjustments to mine plans and future copper and molybdenum production volumes to reduce costs and preserve valuable resources for anticipated improved market conditions in the future. The company expects to complete this review promptly and will report its revised plans during the third quarter of 2015. 

James R. Moffett, FCX’s Chairman, Richard C. Adkerson, Vice Chairman and Chief Executive Officer and James C. Flores, Vice Chairman and FM O&G Chief Executive Officer, said, “We are responding aggressively to current market conditions affecting our primary products and to the uncertain global economic outlook. These initiatives are focused on maximizing cash flow in a weak commodity environment and on strengthening the company’s financial position. We appreciate the efforts and dedication of our global organization who are supporting our plans to implement revised operating plans. We have a positive long-term view for our markets, the inherent values in our large asset base and are positioning our company for long-term success.”

The copper and wider commodities market are lacking the magical ingredients Chinese speculation and margin. These have been absent for some time (including shadow financing) and are unlikely to return without some significant stimulus from the Chinese Government. All compounded further by a basic approach to commodity back financing that has been in contraction and limited to a basics approach. 

This brings us to the question of those with copper in inventories and/or in transit priced significantly higher either, that had a muted response to the FCX news (VED/GLEN?). Especially those needing to deleverage some $18B of commodity inventories (across the board) to maintain their credit rating and profile! Perhaps GLEN have signed up for an Experian Credit account to "manage" their credit file?

Continuing the theme from yesterday on load-shedding, it would appear Barrick Gold (NYSE:ABX) have forgotten to update the market on the load shedding issues in Zambia for their Lumwana Operations Reuters. Perhaps Vedanta, Impala and Glencore are also immune or do not feel the need. Then again, perhaps Barrick need to work out the cost impact at a C1 level as they will now be marginal. Expect cost revisions near $2.20/lb (C1) and all in near $2.80/lb (EMC estimates, no plagiarism folks). 

Question of the day, seeing as China Securities Regulatory Commission (CNBC) is investigating companies and individuals selling stocks, what can they sell to cover those margins? Cars? Houses?...Also, which Beijing bank (non-state) has the greatest exposure? The hunt is on!

Sylvania Platinum (SLP) have released 4th Quarter results. Operating in the PGM space they aren't great. They've had some cash back from Ironveld, spent some on share for "employees" of shareholders, and its unlikely any dividend will be made. The potential benefit is the selling of a few assets (or divestment) and maybe a low ball offer. As a holder, one hopes you sense my unfulfilled mind-set to this stock. As a punishment to myself, and a form of self-harm these will not be sold (self-harm). 

Finally, JKX Oil release their half yearly results. Dire, although perhaps some hope from the Interim Award International Arbitration Proceedings, it’s still not a stock for any widows. More a bet on a geopolitical and financial improvement in the sector. 

In other news today, LGO Energy drill another well. Having sold this holding and gone short, there's no rush to buy back any time soon. One would be wise to wait until the result to assess the viability of the company. Perhaps we were guilty of being too keen (EMC:) closing LGO Short too early. LGO have given no update on its financing and one has a suspicion revenues will soon be committed to interest and debt repayment. Profitable for the lender perhaps but shareholders? 

Atb Fraser

Morning Mumble: Kingfisher (KGF), GKP (Part 2) and....SLP + CMCL via ANTO

Good Morning, 

Kingfisher's "ONE" is now to a point of being unworkable. Any expansion for B&Q is capped, with Screwfix LFL sales increases hindering the 'one kingfisher' B&Q's turn around. Simply put, KGF cannot continue without closing stores and expanding the Argos DIY model we know as Screwfix. 

With FX issues, and European woes the market will, for a perverse reason, like the store closures and yet another grand plan. Blah blah, customer needs etc...If one gets the product offering correct, avoids competing against its own margins, and expands the model, it is simple. The market will embrace the cash return and go in denial of a growth impaired model, incapable of identifying an acquisition and resorting to a cash returns.

EMC's KGF analysis wasn't far off the pace from earlier this month. What is worth considering is whether Kingfisher's operations devalue Screwfix or vice versa. Would open competition via a separate listing be more beneficial? Margins, all under pressure, many thanks Screwfix, forcing B&Q into higher promotional activity. 

GKP raised US$40,693,235 / £27,488,000 via the placement of 85,900,000 shares at 32 pence with Simon Murray leaving.  With a caveat of significant gossip and a lot of it being BS, it’s been suggested this morning that Mr Murray is leaving due to a potential conflict of interest. Surely this would have been disclosed?!?! With one company disposing of property assets and being alleged to be on the hunt for petroleum 'opportunities', time will tell whether it’s anything to do with GKP. 

News on Sylvania Platinum (SLP), with  "future" management options, another  broker change, and a Grasvally update. The chrome license is historic, notoriously difficult to work with but apparently this overcome with 'small and shallow pit type operations. One day the market might be informed who owned the Grasvally license prior to SLP? 

The broker at the time of the ' Grasvally deal' didn't seem to want to answer this question. Despite the managements' assertions of all is well, the lack of share price movement is starting to test the patience of those long-term investors, even those willing to trade the stock! Perhaps holders should watch the SLP space. 

With AIM also becoming tired with Chinese companies leaving the investors disappointed, Aquatic Foods Group (AFG) revisits the positives in a statement in the hope of over-coming a disinterest in their stock. Simply put, one doesn't envy the position of the broker of any Chinese related entity in the current environment.

Limited time for Caledonia Mining (CMCL), the results do not read positively and investors will hug the potential expansion. With a shrewd analyst picking up the complexity of assessing any shareholder returns (at the moment), it would be wise to not buy in to the potential. Unusually the EMC doesn't have a long or short view, but there are whiffs of potential. (Apologies for the art weaknesses). Simply put CMCL's taxation and returns should have been better, especially allowing for FX benefits. 

The no news award goes to Antofagasta (ANTO), what is not said is more telling for the Copper producer! Going out of favour with the market in terms of growth and "potential" ANTO's management are under pressure. 

Atb Fraser

Relating to an earlier question, T5 Oil & Gas Strategy.

Morning Mumble: BHP's South32 (Short32) allegedly less debt & BLT favours, yeah right! Rio's SP10 *(No Sun-protection) and ANTO.

Good Morning, 

There appears to be a lot of misinformation surrounding South32 in the press, where the journos need to take their socks off. There's no way in the world BLT could have loaded Short32 with any more debt, without significant risk to its debt rating and/or higher borrowing costs. Worse, the press have ignored the level at which BLT would have created a defaulting structure that would breach the legal requirements of corporate governance. 

The press ignore the fact that BLT have to ensure that South32/Short32 must be able to operate as a going concern. The commentators prefer to 'believe' that BLT are doing Short32 a favour by reducing the debt. When the sums of the liabilities are put to a total, they are in fact higher, merely labelled differently. 

For those not wishing to split-hairs, the liabilities are higher than 'consensus' with rehabilitation and closure ($1.5B and that may be circa 15-17% on the low side) plus debt of $674M, taking the liabilities and debt to $2.174B, with a $1.5b revolving credit facility being made available. When one considers the on-going liabilities, excluding those clearly labelled debt, its going to make leveraging (without dilution/equity raise) for any acquisitions very difficult, irrespective of the alleged financial prudence attached. Let’s see how the dividend policy goes. 

BLT define South32, as having high quality metals that will be a cash generator, that allegedly the "larger investors" welcome. We'll ignore the volatility of the entire asset class, with a cursory prompt for readers to check the price movements of aluminium recently, manganese is under pressure and coal is not without its significant woes; not so enticing when put in context. Of course Short32's dividend policy will entice the low risk miss-believers into acquiring the stock. 

 

With Manganese, Silver, Lead, Zinc and Alumina making up near 38.6% of Short32’s EBITDA, Short32 may benefit from the Bauxite supply issues thanks to Indonesia's unprocessed ore ban, and declining stocks of Aluminium/Bauxite and Alumina, but how have silver, lead and zinc performed? With any further slowdown in China, don't expect too much in the way of price appreciation, more so a levelling out of both Nickel and Aluminium.  

Staying with mining, and an indicator of the state of the market, Rio yesterday put a tender out for a cargo of high alumina SP10 iron ore cargo. Suffice to say this cargo has had limited interest. The Chinese simply are not prepared to take it without a huge discount, in fact, many aren't/weren't prepared to accept it. 

Higher alumina (circa 3.5%+) content in iron ore causes the slag to become 'rather' fluid during the steel-making process. Processors can be blend the higher grades with lower grade. Simply put, pollution/environmental regulations restrict these deals and limit the price. 5 years ago, some savvy traders would have combined the deal with some low alumina ore from Vale, blended it and made a profit. In today’s commodity cycle, it’s simply not worth the effort or time for most, without a decent discount circa 10%+

Antofagasta (ANTO) have surprised the market with worse than expected preliminary results (2014). We'll save the readers from obtaining an accountancy degree and wade through the waffle in machine gun like fashion. Copper prices down near 14%+ on the corresponding period, taxation in Chile up (it’s only been in force since 1st October 2014/PWC did a very good peace around this time). With margins under pressure and desalination likely to increase costs per pound, what were the markets hoping for today? Simply put, if the investors haven't already priced in lower expectation, they should be from now one in, but all is not lost! 

ANTO's Los Pelambres issues will have an impact on the next set of accounts. With a trending reduction in oil/energy costs, ANTO only managed a cash costs before by-product credits at $1.83/lb, a modest were 2.2% higher than the previous year despite a decline peso. These costs will grow as the wage deals / salary increases kick in over the next 4 years and the declines post reporting period in the copper price.

On a positive, any weakness in the Peso will benefit the reporting cash costs and CAPEX/OPEX expenditure with net cash costs, including by-product credits being a healthy $1.43/lb. The potential upside from Antucoya, Encuentro Oxides and Centinela should not be ignored.  One might just start to turn positive on ANTO with its cash costs being an envy, save for any more radicalisation and issues at Los Pelambres (and the El Mauro tailings dam). The reoccurring theme of grades should not be ignored though but better than management guidance, nor for every 1% movement in the PESO (CLP), it equates to $0.0075 cents P+ve/N-ve to production costs at the current USD Vs.CLP (Chilean Peso).

Unnecessary cheer at Lonmin (LMI) with the appointment of COO Ben Moolman and Bowleven (BLVN) finally have the cash in the bank. The market "may" just re-rate the company, albeit past performance and sector/industry woes will hinder any blue skies beliefs. Juridica Investments (JIL) disappointing the market for no particular reason with their final results. A long-term hold with some very good dividends so far, illiquid so one for the traders as well!

Atb Fraser

Morming Mumble: APF's Largo Resources Royalty + ANTO's $25M Whoopsie (small change), Serco Group (D'err), Glen-shrewd, Soco (SIA), DOR, and GKPence + ASOS savvy traders!

Good Morning,

Anglo Pacific (APF) completed on the Narrabri Royalty Acquisition yesterday without updating its shareholders on the Largo Resources (TSX: LGO) refinancing. Just so those TSX: LGO holders are aware of the risks, there is a 20% coupon  bearing down on them via the Canadian $12-Million Convertible Bridge Loan. One hopes there's light at the end of the tunnel and not a train!

EMC was near as damn it on the money with the $CDN12M raised so far and a proposal to raise a further $CDN40M; with the likelihood of a little more cash being put up. Had APF waited and conducted a sensible deal, they would have got more bang for their buck, although historically speaking, it's hard to say when they have timed any purchases well, see share price. 

Antofagasta (ANTO) have resolved the Los Pelambres issue with their cheque book and proposals for desalination for any expansion at Pelambres, plus funding a few items. Rather contradicts ANTO's statements in their first protest announcement about "a small group who do not necessarily represent the valley community." ANTO's statement caused a 'ramping up' not in production, but of protesting, costing ANTO circa 3K tonnes more of lost copper production, circa $25M worth. Whoops!

ANTO didn't think through their statements treating natives that way, especially those with some degree of education and an internet connection! ANTO would be wise to appoint a local representative/diplomat to Les Pelambres to listen to concerns and establish a social fund to assist those directly affected. The desalination plant (the future of most mining ops in Chile) for expansion impacts on costs, with some estimates being near 50 cents a pound on production. One hasn't worked through this yet, but it gives an indication of the struggles. 

We need a fanfare, it appears that Glencore has conducted a decent deal with Russneft (FT), not to be confused with Rosneft, whom they have a crude supply contract (circa 2013) and a prepayment facility of $10B circa 2014. 

What next for GLEN? GLENseft? Contary to the article Russneft only produce 13.9m tons of crude oil or for the old school, multiply that by around 7.1475121 to equate to barrels (pending gravity at 99.35041819M/bbl per annum). 

The deal is very good for GLEN, even allowing for the $900M exchange of debt and current outlook. The benefit being it gives Russneft some breathing space and allows change to be conducted purposefully. One wonders who next for 'West Africa.'

Having been in dialogue with ex-employee of a gold company, I am flabbergasted to learn what lengths companies will go to manipulate assay results and production when they are looking for finance. If the statements eventually prove correct, I'll endeavour to publish in full. No underwriting required, but for those knee-tremblers, do not worry this company has already gone to the wall, the creditors might not be so pleased however.

For those novice shorters out there, where every many and his dog should have been short on Serco Group (SRP), 10 November 2014 since the update on strategy, capital structure and trading at least until January 2015 and certainly into these results for a double up. SRP have managed to get a fully-underwritten rights issue away. At one stage holding SRP shares were long for the recovery and this proved misguided, with further warnings, shorting was the only answer.  

A few more hit the Christmas card list, Soco International (SIA) preliminary results reading a a candidate for contradiction to their update in January. Having risen 20%+ on the back of their last trading update in January, there was little upside to the stock. TGT drilling programme will be scaled back and the flow rates at TGT/H5 being conservative, all has aided to kick the SP. Don't we have Enquest reporting soon? 

With absolutely NO SURPRISE, we have Doriemus Plc (DOR) have conducted a placing. A member of the Horse Hill contingent, but more importantly, one would be wise to read the RNS properly. Over to DOR to explain I've underlined the irony of the part of the statement:

This funding will be used to strengthen the Company's balance sheet and used towards further farm-ins and other potential investments within the UK conventional oil and gas sector, and in accordance with the Company's stated investment strategy."

Donald Strang, the Company's Chairman, commented:

"This new funding will be put towards general working capital, expected 2015 contributions for on-going work on the Horse Hill discovery and for assessing further acquisitions in the UK and European oil and gas sector.

For the candidates in denial of the risks with Gulf Keystone (GKP). They have called a meeting of bondholders, to remove the "Book Equity Ratio ("BER") Put Option of 0.4 in order to strengthen the Company's ability to negotiate with the interested parties regarding the Corporate Actions." 

Now if you were a bondholder...save for something promised in return, what would you do? Would you really buy the stock now or the bonds? The latter certainly has more security over it, perhaps those followers would be wise to follow the trades in the bond rather than the stock from now? Sounds like the low ball, was indeed, very low-ball!

One hopes decorum and limited profanity from a certain party will be kept after selling the last block!:-). Hat tip to the trades pilling into ASOS on the back of BOOHOO yesterday, sadly one can't be everywhere all of the time! 

ITV acquired  Talpa Media (Big Brother creators), that is good for both parties. Were ITV playing poker with Entertainment One (ETO) or looking to acquire both. If the reports/gossips of a deal with Entertainment One were correct, then its unlikely (without more debt) that they could fund any such deal in the near future, one of ETO's size anyway, over to a US Big boy! 

Atb Fraser

Any web-designers with spare time please contact! Having now been let down by three parties, despite paying, I'm after a freebie! 

Morning Mumble: The Drought with ANTO and SQM, Largo + APF and Allied Minds, + IGAS/INEOS

Good Morning,

With a growing discontent in Chile over the drought, the press are awakening to the idea it's not good for Chilean copper production, more so the natives. Yesterday EMC reported on the protests at Antofagasta's (ANTO) Los Pelambres. For those needing to the geographical model, Chile Copper Mines. 

It was asserted that, "The protests were triggered by a small group who do not necessarily represent the valley community and are seeking action by Pelambres and the local government to help alleviate the current drought conditions. Discussions regarding water availability have been proceeding for some time with the intention of establishing a lasting solution." Yet today, almost entirely contradicting that statement is the court ruling against Los Pelambres (ANTO subsidiary) we’re notified of issues regarding the Pupío stream flowing through Los Pelambres. 

The majority of miners in Chile are suffering, those myopic iodine speculators will still be focussed on SQM's iodine production, will be well versed in the problematic history of security of water supply. The sector is not without its issues of corruption and the legal system / prosecutors are starting to pay attention. 

A few families control 50% of all mining interests in Chile (read being perceived to be above the law), with growing resentment from the locals. Not only brought on by a perception of greed but increase belief that profit comes above all else, the 'stream' at Los Pelambres being a prime example.

With various other options available to the miners including a sea water pipeline (at cost) and not necessarily viable at the current prices, it's going to be a difficult situation to manage. The blame is placed firmly at the door of El Niño (a rather large swelling amount of warm water in the eastern tropical Pacific ocean), although the miners get the pain/blame by the locals. 

APF (Anglo Pacific) still do not appear to have updated the market on the Largo Resources (TSX: LGO) refinancing issues. If these end negatively (although unlikely) could have a material impact on the royalty.  Largo emailed out the corporate update last night in respect of its Maracás Menchen Mine and announced the appointment of Mr. Mark A. Smith as its new Chief Executive Officer. 

Basic maths suggests TSX: LGO needs $60M (CDN), with Mark at the helm financing should come easy for those old-timers of Molycorp and more recently NioCorp (Niobium at Elk Creek). Perhaps on the 25 March, Anglo Pacific (APF) will give some indication of their knowledge. Based on their share price performance since, 2011/12 it doesn't bode well.

Shorts were scambling to cover on Allied Minds (ALM) this morning. Those betting on sentiment should be more short-term, with the announcement of BridgeSat costing some profits. BridgeSat intends to develop optical connectivity system that aims to increase the speed, security and efficiency of data transmissions from low Earth orbit (LEO) satellites at a reduced cost compared with traditional radio frequency solutions. 

Igas Energy (IGAS) finally came forward with the long-awaited UK Shale Farm out Agreement with INEOS. The figures aren't bad at all for both parties, the Swiss Chemical Group (INEOS) get to fund some decent acreage with Igas getting some much needed cash, and carry. The market, perhaps, should have reacted better to a deal worth £65M, alas there's no pleasing some people. 

The news is sufficient to find even the negative of investors now reconsidering. The large bets (EMC) causing some drop as they take short-term 30% gains in six weeks, perhaps they might just leave some skin in the game. 

Leggie, Cairn Energy out today! 

Atb Fraser

Morning Mumble: Victoria Oil & Gas and...

Good Morning,

Why the need for so much, VOG's RNS today should have read:

GDC-ENEO Pipeline Installation and Genset Update, Cameroon:

• Gaz du Cameroun completes all pipeline and metering installation to Bassa and Logbaba power plants ahead of schedule, meeting all contractual obligations

• Pipeline now "gassed up" and completion certificates issued

• Twenty two Gensets with a combined capacity of 28.6MW arrived at Douala port and cleared customs - sixteen of these (20.8 MW) now onsite at Bassa power station and six (7.8MW) at Logbaba power station

• Seventeen Gensets (22.1 MW) scheduled to arrive in Douala on March 15 2015

• Combined total 50.7MW.

• Target date for commissioning of both plants (50MW) remains end March 2015

Instead you can read the full announcement here. The EMC view on VOG is unchanged, VOG's asset is good, the management needs overhauling including investor relations and market updates.

Antofagasta (ANTO) have protests at Los Pelambres by the locals (doesn't bode well for sentiment). The drought in Chile (the alleged caused of the protect) has been significant, impacting not only on the locals, but also mining with no exceptions to sector including Copper and Iodine (Inc, Sociedad Quimica y Minera (SQM)). 

Los Pelambres production is not insignificant (2013 figures), but has suffered grade declines (industry issues for larger operators). One assumes ANTO have got a plan B if air travel is impacted. With the corruption in Chile being far from exclusive to petroleum, expect more discontent. See: SQM announcement. 

With GLEN's confidence in copper already being shown to be wrong, on Friday (afternoon there's a surprise) with POET's day in full swing GLEN's William Macaulay flogged 53,756,571 shares at a price per share of GBP2.8174. Confidence? With that in mind short-term traders have elected to punish the stock. 

Sylvania Platinum (SLP), the once upon a dog of mine until I woke up to the realities of shorting has been awarded the PGM Mining Rights and Iron ore rights. Save for the former, SLP transfer all of the iron, vanadium and heavy minerals to Ironveld (IRON). Long short-term and long-term on both, there's a finance update from IRON and a dividend announcement anticipated on SLP. One won't get too excited. The dividend announcement by the PGM mining rights already risk the dividend. Will save the other commentary on this for another day.

The common-sense question of the day goes to Alecto (ALO) and Desert Gold Ventures Inc. (TSX.V: DAU) whom have entered a Co-operation Agreement between their two assets. Why the two entities don't just merge and remove an entire level of corporate admin and expenses it beyond me! Small beer, but a combined entity has a better chance...

This morning various analysts picking up on the thermal coal issues, it would be wise to start considering a floor to pricing, at least in the short-term. Over to South Africa to fire the first shot. 

Both WTI and Brent Crude slipped just below a vital level of support, $49.56/bbl. and $59.39/bbl. respectively, expect some balancing around these levels and ignore the support levels for now. There's a healthy level of demand around these price with modest fluctuations not likely to see too much pain (read as downside) for the producers. 

There's some more reliable gossip around about Ithaca Energy (IAE) and Gulf Keystone (GKP), the former getting some coverage of being a good recovery play with lesser risks and the latter having some serious interest. GKP's price I'm led to believe is the sticking point with the management 'unable to recommend or back the alleged offer price.' Sounds like a very low ball offer, one hopes GKP haven't been got by the short and curlies! 

With various items afoot at the moment, it’s a short one! 

Atb Fraser

Morning Mumble: A contribution from Leggie, International Arbitration (Bolivia)

Morning, whilst completing my blog and eating croissants, Leggie has come up with a company that is worth a closer look at. Both Leggie and myself have a position in this company already and does not constitute a buy recommendation. As per the normal common-sense rules, not do any posts for that matter. This has to be put in place to avoid idiots running of and claiming they were unaware.

My post is to follow in due course...re: Barclays, the turn around with a big shift in focus, plus AntoFa'ghastly (ANTO) who's results leave a lot to be desired. Rio's dire coal sale. Also continuing the theme of the cannibalisation of B&Q, we have Travis Perkins results, Travis Perkins PLC : Interim Results which in essence is akin the to LIDL/ALDO price perception to Sainsbury's or Tesco, and perhaps even Asda. Save for the ToolStation Loan notes debt was significantly reduced and net interest cover increasing significantly to 20 times+, this company is clearly proactive. I'll cover more in due course. 

Leggie's devling has produced his own view [Start]:

The main issue being that the best play re Bolivian nationalisations I have located happens to be a stock that isn't traded much at all, so its down to tranches and patience. Still, most other things line up for me, so let me know if you find anything Ive missed.

The company in question is/was Soam Silver (soam standing for South American), which was a fully owned sub of TriMetals Mining (TSX. TMI). Soam discovered a silver/indium deposit in Bolivia (named Malka Khota) and spent $16m over 4 years on the project, with a PEA in 3/11 showing a NPV of $704m at 5% discount, with an IRR of 37.7% based in silver at $18/oz and capex of $411m. The cash costs were v low ($3/oz) and there was a mixture of metals, with silver over 70%. The 181 page PEA is on the website, and a NPV of $1.5bn was quoted at silver at $25/oz as a headline, but the figure above is obviously nearer the case today.

http://www.soamsilver.com/malku-khota.asp

So far so good, they were busy working on their PFS when, hey ho, guess what, a media announcement is made on 10/7/12 that the project was to be nationalised, following swiftly on 1/8/12 by a supreme decree which confirmed the above. Five attempts to negotiate were ignored by the government between 8/12 and 2/13, and despite a meeting in 4/13 (v brief apparently) Soam Silver announced on 30/4/13 that it was going to take the case to UNCITRAL for recourse. The position re arb is held here and confirms that the position now is that a statement of claim will be submitted by 24/9/14 and that the court has set a date for hearing on merits as being in either 4/16 or 5/16. The court seems quite intent on getting procedural matters settled between now and then, but no doubt the Bolivian side will argue over every point in the meantime, looking at the interplay to date. More info re the arb case is here-

http://www.soamsilver.com/arbitration-update.asp

Tri Metals Mining have several assets they are developing but the good news for me (at least) is that they have split the company and have a secondary listing (TSX- TMI.B) which is purely interested in the arb case and which will get 85% of the net proceeds. This is positive for me as it simplifies the investment case.

They have also got an unnamed international party to third party fund the arb - Calunius or even Burford Capital, who knows but still a positive as they will have assessed before putting their money down, and hopefully the % take is reasonable and equitable. Given the RUR case, Im hoping its not Burford, but no clues Ive been able to locate in this respect.

The market cap of the secondary listing (TSX- TMI.B) is circa C$18m, which is around £10m and v close to the OXS mkt cap strangely enough. Volume is v low here and there is v little interest at present, with 2 years to go, its an ideal time for me before the claim goes in in 2 months (over $700m v v likely) which may stir some interest. Im long via a small inv but planning on a couple more invs over the next month.

Any comments are welcome. Good luck to all. Im not expecting a $700m payout, but given the mkt cap and the asset, I feel the risk/reward balance is right for me presently. [End]

Cheers for that Leggie, my comments will be in the reply

Will be back later Atb Fraser