Morning Mumble: First Quantum Minerals (FQM) (some positives), CAM, yet more flipping of options! The spat at Mwana Africa (MWA)

Good Morning,

First Quantum Minerals (FQM) gave an update on the ramp-up progress of its new copper smelter in Zambia after the bell yesterday. Significant progress has been made on the cash costs with a modest improvement in C1 costs from $1.36 to $1.25/lb. It’s wise to ignore the previous quarter's $1.77/lb on the basis of ramp up.

A positive for the management, commercial production is expected to be declared in the third quarter of 2015 - ahead of the previous expectation of the first quarter 2016. Although one could argue this was a soft target. Not forgetting that C1 costs are likely to be impacted by the Zambian corporate tax and mining royalty regime, that starts around the time of commercial production, if not before.

With the stock trading at near 900 pence, there's going to have to be some consistent production records including cost efficiencies to warrant such a valuation with copper circa $2.60/lb ($5700/t). Amazingly where the Chinese are closing out yet again!

Staying on the theme of copper it's noted at the price and with the likely expenditure, one savvy analyst a k a Roger Bade has downgraded Central Asia Metals (CAML) to a hold, based on the price of copper, the CAPEX and distraction from Kounrad. 

As one should expect from EMC, it’s always wise to consider Directors true alignment with shareholders. Today we are informed that Nigel Robinson, Chief Financial Officer excised and flogged all his options. Not the first time this has occurred either. If one assumes Robinson is a savvy man with financial prudence, then one would be wise to ask why he has sold all his options. 

This is not the first time Robinson has conducted such an activity and brings in to question the purpose of the options in the first place. Long-term incentives plans and options are allegedly to align management with shareholders. If this was the case, considering today's announcement and that previously, sell, Nicholson and Clarke's excise and sell (22 October 2014), Robert Cathery's sale (1st October 2015), Nigel Hurst-Brown sale (23 April 2015). 

As always, directors’ alignment or lack of raising significant questions. Being at the helm, especially in Nigel Robinson's case, gives a damn good indication of the outlook. Hargreaves Hale will have something to discuss this weekend? Another ENK Plc (ENK) in the making? Over to D&A...and Montoya Investments if memory serves me correctly. With the potential for greater dividends over the coming year, it raises questions about the sales but also M&A. 

It never rains but pours for the serial disappointer Mwana Africa (MWA). It the gossip is correct MWA have had a spat with their NOMAD and Broker and the result is notice being given. Surely it's nothing to do with Mr Yat Hoi Ning?!?! With an operations and exploration update due next month, if you're a holder keep fingers crossed for calmer seas, perhaps even some positive news out of Bindura? 

Today's woes are being felt for the holders in Molycorp (NYSE: MCP) as the company files for chapter 11. Not unexpected. As a leveraged bet on the Chinese restrictions that unwound the company and sank its fortunes, there may be some hope post any restructuring. With a proverbial piste of a share price, any holders left really need to consider their thesis on investing. Mark Smith, must be relieved to not be involved with MCP anymore, and Largo Resources (TSX: LGO) looking brighter. 

TSX: LGO have gained final approval from the Brazilian Development Bank "BNDES" and its consortium of commercial banks for the restructuring of its main construction debt facility (the "BNDES Facility"). In addition, TSX: LGO (EMC: Largo needs $60M CDN Minimum) raised $75.3M CDN to shore up their balance sheet. With the price around the placing circa CDN$0.80, there's some potential, but not without associated sector risks. 

Anglo Pacific (APF) should welcome the income from the Maracás Menchen Mine Royalty, having fallen on the back of the coal settlement contacts (EMC: APF Coal Settlement Contracts Ref: APF), they're going to struggle to hit their target this year. 

Red Rock Resources (RRR) are now hunting elephants, with an investment in an oil company of the same name. This mini-me-conglomerate really needs to consider shareholder returns before conducting such plate spinning exercises. Today means the final proceeds from the Columbian sale have been committed / spent. This companies performance and confetti issues are not going unnoticed, but what next? If one remembers the Ariston advert of yesteryear, it’s highly probable. 

Finally, the thought goes to Richard Magides acquiring a stake in Energy Resources of Australia (ASX: ERA) via Zentree Investments. Perhaps the white knight caveat of a Chinese or Singapore backers is coming in to play? Notification of Holding may be a leverage play on the consecutive losses running at near AU$1 Billion. 

Atb Fraser

Morning Mumble: ASX: Energy Resources of Australia Chair + 2 NEDS quit and perhaps the investors should! CAML's risks of Copper Bay!

Good Morning, 

Three of Energy Resources of Australia (ASX: ERA) directors resigned on Monday. The issues are fourfold, not only is the lease and likely extension of it going to be difficult to finalise, but the pollution (clean up), price of uranium and general outlook. 

Unless ASX:ERA can find someone (anyone) to take on the liabilities of a five year clean up and that would want a project that has lost near £350M for Rio Tinto over 4.5 years, the stock is set for a finale that does not bode well for equity holders betting long. ERA should be renamed White Elephant! 

Its perplexing to see why Central Asia Metals (CAML) have increased their stake in copper bay. There's not only the environment issues (not on a scale of ERA) but with the price of copper and likely return, CAML are at risking of diluting their niche. 

Chañaral Bay Pre-feasibility Study (PFS) Results...as per the announcement.

Project economics are based on the mineral resources estimated on the beach and do not consider the material that may be identified in the surf and bay zone, and a preliminary capital expenditure estimate of US$88 million. Estimated C1 cash costs of operation are US$1.34/lb with a project NPV at 8% discount rate of approximately US$50 million after tax, with an IRR of 21% based on a long term copper price of US$3/lb. Future exploitation of the surf and bay zones may provide significant economic upside to the Project.

Unless CAML can identify a higher volume of mining, the risks for a 21% return don't stack up in comparison to Kounrad. Although low cost, one suspect the all in associated costs, are a smidge towards $2/lb. One however cannot go wrong with Dr Copper if you derisk along the way. 

Save for a decent analyst spotting the plummet yesterday, what are the implications for the credits from copper producers?  Especially those reliant on the sale of Molybdenum. Although paltry its going to hit the bottom line of most...Rio from memory produce near 10K/tpa of Molybdenum. Small but also contributing towards the bottom line! 

More later...hopefully? 

Atb Fraser

Morning Mumble: CIC Gold, Rurelec (RUR) the debacle and questionable business, Juridica (JIL), Mundane Iron Ore (again), TYO, MIO, DCE and Anglo Pacific.

Good Morning

CIC Gold Group Limited whom allegedly has prominent Chinese gold miners and international mine developers as backers intends to list. It will be certainly an interesting story to follow with various entities struggling on AIM or giving dire returns there's hope for CIC, or is there?

The story doesn't start with CIC Gold but with CIC Capital. CIC Capital notoriously went from sub 1 pence to 10 pence on the back of very little and then subsequently suspended/delisted in 2014. Of course, the current holders are 'looking' for growth. 

If one is contacted by VSA or similar regarding the IPO, it would be wise to ask what DD has been completed on this company including whom the “prominent Chinese gold miners and international mine developers are involved." If one has the time, the prospectus is here. It would be wise to look at the number of shares (the issuance of) and why they have been issued to CIC Capital. 

Rurelec's debacle is not over yet. Today there is a wave of announcements, some that shareholders should perhaps consider more positive, one that is not is the "gifting" of IPC to Peter Earl by Rurelec as he departs. I think RUR have rephrased "spinning-out." 

RUR purchased IPC for £16,560,483.87 including the two Siemens Westinghouse 701 DU turbines that were subsequently sold for £1.2M leaving some £15.3M valuation for IPC. How IPC, can "spin out" (changed as I was typing) to "remove in excess of £500,000 worth of overheads out of the Rurelec Group" is questionable. If all the assets and liabilities have been transferred into Rurelec. One assumes they're factoring in Mr Earl's £230K remuneration commitments? 

What is laughable is, IPC was meant to "accelerate Rurelec's organic growth and increase Rurelec's global footprint." IPC & Rurelec share the same offices, on the 17th Floor, Millbank Tower London. Were their separate staff being transferred out, name Peter Earl and associates? In essence the savings are not savings to RUR in the true sense of the word, without clarity on what "savings are being made). We'll ignore the director loans to a subsidiary but these under Related Party Transactions in final results out today. 

Should the "independent directors" not check with the NOMAD whether this transaction (Spin-Out) is fair to shareholders? In fact, having acquired IPC to increase their footprint, the "nominal sum" payment is laughable, based on potential goodwill and positioning in the market. 

IPC, as a company has a brand value (including goodwill) over and above the assets. However, having been a shareholder in RUR previously and sold out after the dire issue of the International Arbitration and subsequent misunderstanding of Third Party Litigation Funding. It would be wise to reconsider any position if the company cannot protect what assets it had left (or has). 

Should you consider Peter Earl a net seller in the stock now? Having been in consideration of the Jam Tomorrow Award, this may prove very unfair. Perhaps RUR are now being upgraded for consideration of the "destroyer of any value for shareholders award." In gifting / spinning out IPC at a nominal sum! The company would be hard pushed to justify the sale (now spin), when in IPC's own website words, http://www.indpow.co.uk/,

"Independent Power Corporation PLC is one of the United Kingdom's leading power developers and power plant operators. Founded in 1995, IPC has developed, owned or operated 7,000 MW of thermal and hydro power generation facilities in North America, Latin America, South Africa, Asia and Europe." [Within Source of website ]. This was subsequently changed to,

IPC has owned, operated or developed over 4,000MW of thermal and hydropower generation facilities in Latin American, North America, South Africa and Europe. (Current)

IPC's brand/business/company even as a shell should be marketed for sale. 

Having taken profits and dividends in both Juridica (JIL) and Burford (BUR) today's portfolio update was negative on the bottom line. Measured in NAV, JIL is valued after today around $150M (ish) without checking. Consequently, the stock correctly repriced the stock 88 pence. 

With some volatility in JIL at the moment, it’s hard to justify any share appreciation based on the NAV. As a result, a disappointing 17% return over near 3 years on this investment, allowing for today's sale with no further holding. Better than most bank returns but disappointing. Time will tell whether its wisdom to hold Burford (BUR), performing better over the 3 years with a better blend of small dividend and share appreciation (50%) ish. 

The iron ore price gave the proverbial kicking to the producers. Sensibly the drop away from the ceiling set by the Chinese (EMC: Mundane Iron Ore Spot Price) is now a reality. With some hedgies banking significant profits. This was a common-sense trade, especially in light of the reduced imports that fell 8% in May to just under 18MT’s for 62% fines but the price has temporarily. 

There’s a lack of speculation in the physical spot prices / supply / immediate delivery including that on the DCE (Dalian Commodity Exchange). Closing positions on Copper and Iron Ore on the basis they are currently linked. Copper, with the dollar's weakness and potential restock has a greater degree of risk in the short, than Iron Ore. Iron's critical level of support circa $60/t (62% fines) and 65% fines now sub $70 and looking for support. Seven days previously at $74/t (6% decline in a week). 

With steel prices softening in China due to lower demand, iron ore is logically following suit. The belated restocking, was a convenient necessity for all concerned push prices up off the lows. The lack of sustained demand will have the speculators looking to any further declines in the ports inventories just keeping its head above 80m/t's. As a result, in line with the dropping iron ore price, the SP in Rio, BLT, Vale and FMG have all followed. 

A question for the majority of Energy Resources of Australia (ASX: ERA), in light of all the news on Ranger 3 Deeps project – further update and Rio's inclination to avoid funding much further. What reason is there to hold the stock further? Denial? 

Save for some Knight in Shining Armour, of Chinese lineage perhaps? Rio and ERA have appraised the feasibility of expansion and simply, in the current outlook, it’s non-viable. This does not bode well for the other producers if an established entity cannot find economic reasoning to extend LOM (Life of Mine) and justify investment. One hopes if they are also Atlas Iron holders (ASX: AGO) they can keep merge this disapproval in a joint email to save time! 

The market is mystifying at times, on the one hand its prices in any risk (proactive) and likewise, it reactively points out the obvious. Today selling the remainder of Anglo Pacific (APF) and closing spread bet positions. It would be easy to think I've lost my marbles after a decent recovery and better outlook. Well simply, if the Coal Settlement Contracts are as announced it doesn't bode well for Kestrel. Rightly as Roger Bade points out, "it's not good news for APF". 

APF are diversified, but one cannot help to wonder if there's a swelling in supply. How this bodes for US exporters/producers is another question or Mitsubishi Corp, whose share price has seen a decent recovery of late, near 25% gains in a year. Admittedly significantly more diversified than APF from Banking, Food, Machinery, Chemicals & the all-important energy. For those trading the related stocks TYO (Tokyo Stock Exchange) one would be wise to consider the implications. 

Finally, Minco (MIO) announce further drilling results. It adds nothing really exceptional at this stage to the value of Bachans, due to depth and narrowness of veins. As tight as 85cms in depth) and as narrow as 50cms in width. Back to that old chestnut of strategic speculation by the Chinese and potential JV/total sale. Buchan's may need a revaluation in due course, after more drilling. 

Atb Fraser