PM Bolt On: Syrah Resources (SYR), Harvey Norman,

Good Evening,

We'll call this the Australian focus.

In my determination, I'm getting back into the 'blogging', albeit not as prolific as yesteryear, but also an Australian Theme, as that what interests me at the moment; save of course for my WPP thesis.

I'll start off with Syrah Resources (ASX:SYR), I've been short there for some considerable time, based on a my views below:

1)    A sub-tier asset, with certain questions over the viability of the development. A major element is, “how can you mix Graphite with unspecified levels of Uranium and still be viable?” Perhaps I'm missing something within the company agenda? Feel free to voice it if you think I am off the radar.

2)    Remember, first and foremost, Syrah's asset, Balama was only acquired after a number of attempts at proving up a substantial Uranium deposit. These attempts were disappointing to say the least. This doesn't mean it had no Uranium, more so the levels are/were uneconomic. I’ll maybe come back to what a battery specialist was educating me on recently.

3)    After the last Sales and Marketing Investor Session, there appears to be a lot of hope being put forward. For those unaware or perhaps not following, the Graphite Export Tax has been removed in China. Source: http://benchmarkminerals.com/china-begins-graphite-overhaul/

4)    The capacity in China should not be ignored and elsewhere in the world, perhaps some closer to home than Syrah give credit for, such as Triton; a quick refresher of the Triton Minerals presentation (2017). There's high grade in the region, predominantly reliant upon by the flame retardant industry and not the battery industry (my view again)

5)    Whatever happened to SYR’s promises of a US plant, not only is the balance sheet, in my view, incapable of accommodating such an expansion, SYR have switched to an Asia focus and,…in my view still needing capital. So, assuming I’m correct, the 'dreams' of being a Tesla ‘major’ supplier, are out the window too? I think so. The new CEO might have more abilities than the last, but only time will measure that.

6)    The price assumptions and cash flow of Syrah simply don't stack up either, I'd got as far to say totally unachievable, but being the 'amateur' here, what do I know. My estimates of the balance sheet is Syrah will need further cash towards the end of the plant development  in Mozambique (save for a prepayment deal). Admittedly for those in the last placing, at least they'll be able to average down. For those short, it at least improves the liquidity.

Nevermind, I’ll revisit after the next set of news. By my estimates its not far off…

On to Harvey Norman (HVN), apologies for the Australian focus, having been rather centered there recently, it cannot be avoided. My largest short for many a year is Harvey Norman, purely on the basis the rebate model and Franchise support is out the Window. 

For the HVN lawyers, this is my view, not determined just by company statements but importantly, investigating how the support model has shifted. The company has to consolidate the Franchisees’ account and importantly has to deal with an AISC enquiry relating to some ‘issues’. https://www.channelnews.com.au/asic-investigating-failed-harvey-norman-franchisee-operations/

Then again what do I know? More to come...

Atb Fraser

Morning Mumble: Robertson's Jam (Fox Marble), Wandisco (WAND) & the panacea for the PGM industry.

Good Morning,

Is it starting to look like a management issue (or perhaps capability issues) with Fox Marble (FOX), after today's operational update? A Lack of orders, issues with machinery, some small orders, some advanced payments and  fire at Prometec SrL, the company responsible for supplying and refurbishing two major pieces of machinery due to be installed at the factory (total write-off). As a plus they were insured. Adding to yet more delays, including 'accessing the higher quality stone.’ At what stage will the company start being proactive? We had EMC: Fox Marble May 2015. 

Having given FOX the benefit of the doubt in December 2014 (EMC), there's little sympathy left for management 8+ months later. Fox Marble, like a few companies on AIM have quality assets, it's just the management erode the value for a number of reasons. FOX may have created an over-expectation in shareholders by their guidance. They certainly haven't delivered and the price will be punished as a result.

For shareholders, they can but hope the management are going to resolve the woes of their existing operations before entering into a joint venture in North America, which should further increase its penetration into the world's largest consumer of polished marble. Time for a management change? Unlikely as the management hold near 25% of the stock, the issue is, whether people will continue to hold is another story. At what stage were all these operational woes including poor sales performance known?

As a plus, there's some jam in there, with visits from their Chinese partner/agent and some politicians, assuming you can be bothered to read the entire RNS. If there wasn't enough in the announcement to attempt dissuade holders from selling, as a last ditch effort, FOX remind the market, as of the 30th June they had €5.6 million in the bank (one hopes not Greek). 

Over to Chris Gilbert, CEO of FOX, to summarise the disaster, "Whilst the first half has been disappointing in terms of sales and we have had some unforeseen operational frustrations, we remain confident in our objective of being a major international supplier of high quality marble. In order to underpin the development of our sales channels we have appointed three additional experienced marble sales staff over the last few months, and we expect that this will also bear fruit as we bring on the production of Illyric White marble from Malesheva 2 and larger volumes from the Sivec quarries in Macedonia." 

Syrah Resources (ASX: SYR) have done the unthinkable and conducted a capital raising (placing). Here's yours truly thinking there cannot be that many mugs out there. Congratulations to SYR and team, they only go and do this on a fully underwritten basis for AU$$211 million (Placement) and Entitlement Offer). This won’t change ones view of the company, Slater and Gordon managed to raise monies.

If one has researched Syrah Resources and the neighbours licensing, it would be wise to start questioning the valuations. Certainly that of Syrah resources, where almost identical operations are valued near 4 fold less (Triton Minerals). Triton Minerals (ASX: TON) has teamed up with AMG Mining AG whom have an interesting history themselves with the debacle that occurred at with Timminco in Canada. 

With a global supply...oops global demand being limited for Graphite currently. Admittedly, one shouldn’t exclude a business on global demand as there “may be” new opportunities. However, the new opportunities do not appear to be presenting to the market. Least we forget Kenmare Resource’s (KMR) venture into Graphite. With Vanadium making a brief recovery and support coming to the price in the market. The prices are now likely to be shattered come 2017/18 when Syrah bring yet more vanadium and graphite into the supply chains. Unless of course there’s a significant change somewhere.

Question for the logistic providers, “why is Nacala port preferred over Pemba?” The port's website is down at Pemba, but should it not be in the frame as a preferred port, compared to Nacala? Immaterial really, when considering the viability of extracting the ore with the current demand, outlook and cycle of commodities. Disappointingly, one has to wait until the trading halt is lifted and the shares resume trading on Thursday, 6 August 2015 (Ex-entitlement).

We had a do at the weekend, where Wandisco (WAND) came up after their sales update and Tom Winnifrith’s short in August views on WAND.  It’s timely, as we introduce the label "JAM" to the EMC to identify companies. Not only the likes of WAND and FOX, but for the entirety of the market as the need arises. As a reiteration, there is no need to change from the view in January EMC: WAND. The lack of cash is the theme and lack of sales/profit. 

From dialogue today (RG H/Tip),...Does Team UK (the markets) not know that Subversion, CVS and Git (and Hadoop) are readily available? In addition to being open source, where some feel WAND do not add additional content to warrant a premium? With one chap coming out with a PT of 14.5 pence, its certainly punchy and one that the market may have to swallow.  

The PGM industry is suffering, as a result of power increases, wage inflation and operational woes, and needs some assistance. We have the answer, or more poignantly, Lonmin (LMI) has the answer. With the market waking up to the realities of LMI, save for a rescue plan from a Chinese entity that themselves are under pressure themselves, the company is due a rerating (downwards).

The panacea for the PGM industry is a large casualty, and LMI fits the bill. Big enough to reduce the over-supply, small enough not to be a significant casualty for the banks. This would also free up electricity capacity, reduce the strangle hold on labour prices but create a deflationary cycle on mining costs in South Africa.

Norilsk Nickel preliminary consolidated production results for the second quarter and the first half of 2015, shows supply increasing into a stagnating market. Norilsk guidance of Palladium (Q performance up 15% q-o-q) targeting 2,580M to 2.610M ounces for the year and 590K-615K (Q2 performance up 6% q-o-q) ounces of Platinum. Just one of many producers ramping up in an attempting to reduce costs to a viable level. 

Any short-term relief is limited with demand and/or speculation being below forecasts. With car and truck (heavy duty) sales coming under pressure from reducing capital investment, Lonmin could just be what the entire PGM industry needs, closure. Removing overnight, a good proportion off the surplus.

In the absence of closure, LMI have their work cut out, with a capital raising required, potentially just to fend off the banks and then there's other woes of cost inflation throughout their entire chain, never mind being in South Africa (RSA) 

Its been pointed out the link off the Indian Times story was inadvertently missed. Hopefully this will be corrected. 

Atb Fraser