Morning Mumble: They have Phorm, NEXT guidance improvements. Can it get any worse for First Quantum (FQM), load-shedding! + AQP & GKN + DRX

Good Morning,

I would like to apologise to readers for kicking this proverbial dog, but Phorm have Phorm. Today, the can is kicked back with a convertible loan note extension. In essence this is a pre-placing, keep the air conditioning running type corporate action. With little to add to Phorm, EMC: criteria for a huge short March 2014. 

The long-only contingent are celebrating with a stonking trading statement from Next (NXT). EMC: NXT March 2015. Over to Next (NXT), with an increased sales and profit guidance for the full year that supports a timely buy note by Citi on Monday. With no buy back, but the floor raised to £69.62 and a special dividend of 60 pence (2 November 2015). One will sit and wait for the trading opportunities. It’s noted a lack of margin commentary or analysis.

First Quantum Mining (FQM), has received notification of a Force Majeure for the supply of electricity to its Kansanshi operation from ZESCO. With load shedding/supply being reduced 23+% at Kansanshi Operations and Sentinel being reduced the same from 55 to 42. How this affects the guidance and ramp up is another question. A likely 2400 tonnes per day feed through, the costs will move out to the previous $1.77/lb (not C1). Are Vedanta (VED) affected as ZESCO have suggested it’s just in the North West region? Also, was the load-shedding announcement made on the 13th July? 

For the geographically minded, this has been on the cards for some time. ZESCO is reliant on Kariba Dam. Water levels there have been at lows and the outlook isn't great either. There's a material shortfall of 550 MW this year. The problem is likely to get worse, as so far the power reductions are plumb on the middle of guidance, whereas the the grid is showing a 30% deficit in power generation. Perhaps Aggreko can assist? They should be on the phone already, if they haven't already been. That's a significant 'potential' contract...

There's has been an absence of reporting from Vedanta. VED's Zambian operations are not insignificant, nor are Glencore's, who also have an interest in Mopani Copper Mines plc along with FQM. The load shedding issues will not be resolved until the end of the year at the earliest.

The issues have been discussed in the Zambia parliament over recent months by the perhaps outspoken Mr Patrick Mucheleka (MP). Not only taking a significant interest in copper, power generation but more importantly, the acquittal of former President Rupiah Banda. Perhaps to the disappointment of President Edgar Lungu?

A psychic announcement for Lonmin (LMI) thanks to Aquarius Platinum (AQP), whom Q4 production results. The pertinent issue in the commentary from Jean Nel, CEO Aquarius Platinum said (see bold): The fourth quarter was characterised by a particularly good performance from both Aquarius operating mines. Both Kroondal and Mimosa again improved safety, delivered all time fourth quarter production records and reduced costs, in what remains a challenging operating environment. The performance is testimony to a disciplined approach to operations and the operating teams at Kroondal and Mimosa deserve much credit for this. From a macro perspective, the lower metal prices which prevailed during the period and especially post quarter end will not only require an increased focus on safety, cost and production discipline, an approach which Aquarius will remain committed to, but also a focussed assessment of the viability of each shaft at each operating mine to ensure the sustainability of the business in a low metal price environment.

In case anyone is trying to fathom out what calendar AQP work to, today's is Q4. A lot of work has been carried out at AQP. Sadly the share price is unlikely to benefit much from it. It’s a testimony to the capabilities of the staff. The overall outlook won't help AQP, expect more cuts to production from unprofitable shafts. Although near a more realistic valuation than LMI...whom must be haemorrhaging cash! 

GKN results, acquisition and cash placing for another day...but watch that space. The book runners will not doubt suggest the job was difficult in the prevailing market etc.! Of course it was 'Gov.' Rather insightful after yesterday's EMC: JMAT read across for GKN! Drax's half yearly today aren't so bad. Having been a knife catcher on the climate levy changes, and a strategic review under way to consider the long term options for the Group. 

Atb Fraser

Morning Mumble: Talvivaara (TALV) do holders have a case? The Hedge Fund's speculation, AQP soon to be RIP?

Good Morning, 

Talvivaara investigate their own disclosures between 2011-2013, where it is alleged the market wasn't informed of significant changes in production volumes and the impact on the forecasts. 

Readers of FTML will know TALV was a favoured short for a considerable time. Apart from the obvious, what more did investors need in assessing what a crap investment is? Even at significantly higher Nickel prices, TALV could not make money. Simply put, "its technological model" is/wasn't suited to an environment of prices any less than twice the current market (EMC view). (Source regarding investigations: Taloussanomat). 

The Hedge Funds have spotted what the EMC realised with an iron ore price spike, when two small buyers were in the market, with the physical (almost immediate delivery) being in short supply. Its common, when prices tank for companies to slow the immediate supply to market, in the hope prices pick up or a premium, as such the speculators are going to make those in need pay. Even the "tin" market (Indonesian woes) may benefit by the categorical absence of decent supply. So with commodity traders betting on a short-term appreciation, expect some decent, yet predictable volatility. 

Fortescue Metals Group (ASX: FMG) refinancing, was the kick-start the stock needed to recover some of its losses. Albeit the profit-taking is now in full flow, damn those traders. FMG's refinancing on a simple level was needed, but was far from cheap, or was it acknowledging the risks of things to come. So with some breathing space and the Chinese determined not to let the native producers go to wall, the swallows are departing quickly!

Aquarius Platinum (AQP) Financial and Production Results to 31 March 2015, which should have been labelled Q3 production, but AQP would be wise to stick to a non-standardised update format. Simply, the results are crap, in the absence of a turnaround in the PGM (Platinum Group Metals) sector, the company is destined for more pain. Well, not exactly, the shareholders are. 

Obviously with AQP, you can scrape the barrel by looking at the cost improvements in a "hard environment, ounces down on the previous quarter and labour costs set to rise. With a telescope to a hope of future price appreciation, AQP isn't looking pretty. Of course there's some benefits to trading, illiquid, moves on little volume, but not without risks. 

It’s hard to justify a value above the cash in AQP. How certain parties managed to get other jobs post AQP makes one wonder! In the absence of a recovery in PGM prices, don't expect anything other than pain, save for the asset sales made today. 

Allied Minds (ALM) annual results were out, which need a significant amount of time for this techno-limited mind to work through! Having banked profit at 600 and the cheeky short, there's no concern regarding any holding, the wise should have also taken some profit!

Finally, Oil has woken up to the inventory reporting, wonders will never cease. Sirius Minerals suffering the usual sell on the news...Kier Group's (KIE) rights issue to buy Mouchel will not do the SP any favours post completion of the deal.

Atb Fraser

Morning Mumble: PGM Horse Trading &...and real economics.

Good Morning,

The rocky road of Republic of South Africa (RSA) PGM industry, or soon to be known as the shareholder gift-aid scheme. Aquarius Platinum (AQP) has managed to find a sucker in Northam Platinum (NHM: Johannesburg) for the Everest Mine that's been on care and maintenance since mid-2012. The costs associated with mining, allowing for a weakening Rand(ZAR) and labour disputes settling down, makes the industry untenable at current costs and a surplus in the platinum industry mean prices are going to stay around production costs plus 7% (ish) for the foreseeable future unless something changes. So any leveraged outfit is unlikely to achieve a sensible level of shareholder returns. 

Will it benefit Sylvania Platinum (SLP) J/V at Everest North tailings operation? Unlikely, but the management can of course use some crystal ball gazing to award themselves some more no-cost options to reward them if Everest North does come back online. Its difficult for a platinum company, if they don't invest in platinum they're essentially saying what everyone else knows, there's better returns elsewhere. Until the gap between demand and supply narrows mothballed mines coming back into production will only prolong the pain for the sector. 

Inspirit Energy (INSP) signs letter of intent yesterday and conducts a "micro" placing today. This appears to go in for a seasonal ramping. Having a position and traded this stock according to ramps and news flow. The company needs a decent partner with funding that removes the risks to the current holders. It’s "almost" identical to LGO's Spanish oil news flow all those years ago. Not without risks, but with some potential, one hopes any deal isn't hindered by a JV with a Goliath that has little interest in pushing the market share. We'll ignore the obvious with the Micro-placing terminology, it’s a placing and very small at that...almost implying its crowd funding. One just hopes they don't open a microbrewery! 

With Oil tracking the bi-polar mood of the world economics at the moment, it’s disappointing to see the likes of TUI AG Plc (TUI) hedging so significantly in their 1st Quarter Results. Forget hindsight, when would have TUI have not benefited from a 50% (approx.) hedging and fill the rest from the spot price? Perhaps this amateur is missing something, but a quick gauge over the past 5 years would have meant a net benefit of circa 6-7% on fuel costs.

Copper is hanging on the cliff of appreciation or depreciation, with some gossip in China that the numbers and trade are down further. In contrast financing seems to be improving for leveraged trading (attempted bottom feeding) and restocking taking place contradicting all those bulls the market was artificially low. trading circa $2.5450/lb. Chinese trade data now increasing the odds of Chinese full-on stimulus if they wish to maintain their growth targets, the market awaits the direction or revisions to growth. 

London Property Bets in the FT. EMC commentary on Berkeley Group & Foxtons, the first set of shorts were 5 months ago and now the market is waking up to the realities again where there's a secondary short as the market accepts the facts. 

Zoopla (ZPLA) and Rightmove (RMV) have to do maintain their competitiveness with their fees and advertising. OnTheMarket.com (OTM.com) is the dilution for the sector and a disruptor over the long term for earnings, whether it is a success is immaterial to estate agents whom can negotiate harder, with London normalising, ZPLA and RMV will be under pressure. Expect the denial and ignorance to persist with price appreciation in the market, until OTM.com's marketing and impacts are felt. 

UBS find themselves with the no news award today confirming they've been affected by the CHF both short-term and longer-term. It will impact on their longer term results, unless of course they've employed a magician.  

Atb Fraser