Pm Bolt On: The Whooping great Lonmin and Skyshorts &....Glencore, Aussie Dollar + Oil.

Good evening, 

Exceptionally busy day but moving swiftly on to the realities biting in the PGM sector and digital TV rights sector. It would appear Glencore (GLEN) could not find a company desperate to take on their Lonmin stake bar the currently holders gaining “in specie." Has Ivan lost his touch of being able to do deals?

Lonmin (LMI) and RSA (Republic of South Africa) unless something remarkably changes is unexciting and unlikely to produce decent returns for holders. GLEN's actions have capped any positives LMI would have had, although the shorters will have welcomed the reaction. We will ignore LMI's margins, they don't appear to want to comment above stating they're profitable. 

For those knowing more about LMI, quite why they're spending what they do on their furnaces without introducing ConRoast in its full form is something perhaps the company would like to answer. Does the company need reminding they have grandfather rights in the technology? Bob the Builder would welcome this type of contracting work, build, blow up repair...perhaps Shaft Sinkers should morph itself into blow up repairs?

GLEN's production report was out, avoiding the killing the shares deserved. Spending has been cut from just shy of $8 billion to $6.5, GLEN's positioning in the market with its assets doesn't bode well for the underlying earnings that will be announced in 3 March 2015. Production was far from enough to prevent a drop in earnings, but the market likes the additional cuts, when is GLEN's dividend under review/shelved? 

Those LMI in specie holders looking for a new home, there's always ITV, with a lot of noise coming out from some decent corners of the city about a potential offer. The caveat I'm long in ITV and would welcome a take out by Vodafone or Liberty. Having attempted to test this not one journalist (all 8) known to EMC have been able to validate the chatter. So it comes with a high risk warning. 

GBPAUD (£Vs. AU$), the favoured FX play, with the political issues and rate cuts, commodity prices and general state of the economy, Australia has got its wish on a weaker currency. All those years ago, via Moorad's Shout Table in the Long Room the targets were a little expectant in terms of time frames. Closing the GBPAUD longs and awaiting the next set of indicators post £1VsAU$1.97. 

Australia will be affected by the iron ore 'cost war' with Rio battening down the hatches in Pilbara and giving the signal to the sector, Rio Tinto stops hiring in bid to cut costs, Australian's may be at risk of causing their own increase in unemployment by their determination to allow the excessive supply of iron ore and coal. GLEN's suspension (temporary shutdown) of coal production in Australia was too little too late for the market as their figures of increased production evidenced, over supplying your own market is never wise by circa 8-9mt's minimum. 

Oil (Crude & WTI) continue the realisation of inventories and take a further kicking, the Chinese speculators disappeared as quick as they came, we'll await the press realising the floating storage being below market consensus. WTI trading $49.10/bbl off 1.84% for March contracts and Brent's disparity narrowing at $54.72/bbl off -3.03%, not great for those, including the minnows Trap Oil (TRAP). TRAP came out and gave their holders a royal awakening with a corporate and operational update, one wonders if they were asleep at the wheel as investors.

Hats off to BT.A for playing a very shrewd game and forcing SKY to weaken its competitive edge and overpaying on premier league rights. Unless Sky have bought the rights to a magic show, the end user is going to have to wear some of the costs or the shareholder, its unlikely to be much of the latter. The term unsustainable covers Sky's premier lead bidding very well. Sky needs a few more users to spread the cost...

Who would have thought it, Apple going into First Solar, what next Tesla? Surely gold isn’t weak due to Apple share price appreciation at $1219.10/oz. 

Atb Fraser.

Chinese afterthoughts & GKP (The pundits favourite)

The reliance on state bail outs is coming to an end in China. The excuses are many fold from "utilising this time to improve quality, lower pollution, improve economics." It’s our view China has to stop investing such a large percentage of GDP into capital investments; whether that be roads, railways or redeveloping towns.

The weighting of lenders towards specific sectors is not the only issue specifically where there has been the most defaults: Solar, Coal, Real Estate and potentially Steel Mills (two are rumoured to be looking for aid). There are number of bonds due this year in China, with the market exceeding the official figures.

The Chinese bond market should be a likened to the larger platinum producers raising capital for expansion, but unsurprisingly this has to be transferred to OPEX - a prime example being Aquarius Platinum and Lonmin. What parties should be concerned with is the "amount of cash raised compared to what is available to pay these coupons." In such a short-period of time the cash has all but disappeared. 

The most recent Baoding Tianwei Electric default is a prime example. With $328 million raised 2-3 ish years ago and it barely has enough cash to make a $500K part payment that was due on the 7th March 2014.

Chinese Bonds replaced the Development Grants that the Chinese awarded to the likes of the Solar, Coal and Steel Mills for stimulus. The investors mistook these grants for a bottom line operational profit, but someone forgot to ask how much development grant has the company had and how much less will it be receiving.

If major companies are defaulting on repayments within 2 to 3 years of the issue of Bonds, it raises a significant question about how bad the balance in the economy is or is not. The latter has caused the deleveraging of positions in the Copper and Iron Ore, with consequences being felt in the product pricing such as steel with oversupply as an additional problem. 

Ironically, if one is to look at the Rusal IPO and listing in Hong Kong, the figures rather glaringly stated what was going on not only in China but Russia. The Russian state bank is alleged to be looking at bailing Rusal out. From one perspective, bailing out international lenders at this time with the Crimean issues is very unlikely. "Lenders" are likely to compromise on a deals albeit at the last minute.

The property bonds, are not only pricing risk in on Copper, but also on the entire over-cooked/leveraged sector. With Zhejiang Xingrun Properties clearly unable to pay its $500+M bond's what next?

Well my view is simple, in order to meet growth targets etc...China ironically has to let these defaults occur to avoid further over-cooking in other sectors. 

First China had Coal Defaults (albeit bailed out), then Solar defaults, then Buildings and/or Real Estate. Its only time before these positions unwind so must the leverage in Copper, Steel (the most heavily leveraged one way steam locomotive that's running out of track!), Iron ore, and Oil. This will be a short-term correction but more pronounced.

With Iron ore likely to be 61-65 a tonne 12-18 month average and that is slightly higher than our revised consensus of 55-57$. I acknowledge it’s bounced a little, but I put that down to speculators doing the same as I and buying back their short positions.

The knock on is that aim market will suffer with economies of scale not being to a magnitude to become more efficient. The prime example being the Gulf Keystone, which was it really a surprise?

Some idiots, had a belief that two Chinese chaps in the Gallery at the trial meant a buyout. Correct me if I am wrong but the best time to sell Gulf keystone was when they raised the bonds Pricingof Convertible Bonds but more importantly when one of the head honchos sold ten million. 

Its acknowledged that it was a transfer under a financing agreement but let’s face it, it’s still a corporate activity between two parties (aka a sell). Namely, that corporate activity involved a person whom was meant to be enhancing shareholder value but strangely was not maintaining any exposure. 

As a thought, with the Bonds under significant stress, higher cash burn, and limited production, what's the odds of it going forward? But strangely, why has the market been so slow to react and will GKP be able to raise monies at a level that is affordable for the development. It’s looking more likely that a stressed farm in deal or massively discounted Rights Issue will occur perhaps a SEDA just to cheer the holders up some more.

Genel are funded, have cash and are certainly a cheaper option in terms of director salaries than say, GKP. However, any deal would have been done long ago, and with the risks GKP have, any suitor would surely be wise to wait to see how poorly the company is before approaching.

Interesting times, but its worth consideration with a spat of corporate bonds being inked over recent months, will there be defaults? Hmmm, these 5-6% high returns in a bond are not really worth the risks of companies whom have not got the prowess nor history to back up their assertions off repayment.

GKP have not defaulted, but it will certainly have some stress and or costs attached to make payment. I would not be surprised if equity was exchanged for the repayment at a discount to market for parties to load them off to cover their own liabilities. 

It’s nice to see blogger comments working properly, I'm aware it’s been a non-goer for some time. I can read them merely not publish most of them despite trying. Even those negative ones, extolling positives about my character and shorting actions (I think everyone knows there haven't been any of those!).

Perhaps shorters should be called realisers of true value, it sounds more acceptable. This is from someone that disagreed with the shorting principles of negative betting only 4-5 short years ago. It was a realisation that people were more likely to back a dog and hold it tighter, that I realised shorting was easier to start, realise and assess companies than longing. 

There are benefits though, trading is more exciting, and shorters have a mind-set that is ironically positive, don't moan about taking a hit, but most importantly of all have to make their own decisions.

I would go as far to say it’s addictive, what better validation than making money when the majority think the price will appreciate? The underdog of the market, the contender for the most abuse.

As a final thought for those thinking about all things trading wise, I will not be sharing my data, but what percentage of AIM companies have missed their self-reported targets? Doesn't bode well for the longs out there if there's so few companies where targets are being met. 

Just a thought...

All the best, Fraser (Sat outside in the UK in March without thermals)