Morning Mumble: Is Greece's agenda paying off? SHCOMP etc...Copper (FQM), Iron ore, Sierra Rutile (SRX), CMCL &...Margin Margin Margin!

Good Morning,

So the vote about "terms" that were allegedly withdrawn has taken place and the outcome is now being consolidated by those denying the gravity of the situation Greece 'feels' it’s in.

Since Tsipras's election and formation of a coalition of sorts, Greece has been on a train with one track and no other routes or exits for its destiny. Not only will this have implications for Greece for the longer-term (35+ years), but will raise doubt over Europe's ability to keep its members in line (the status quo).

China is not assisting matters, with the press realising (belatedly) that the Chinese Government [was] is providing liquidity to the CFD/Spread bet companies offering margin. EMC:Margin and Securisation (03rd July 2015).

Over the weekend, the FT ran with Chinainjects liquidity in attempt to reassure markets. The CSRC (China Securities Regulatory Commission) has come out and stated what the market was aware of. The PBOC is now providing finance to the China Securities Finance Corp (CSFP) to maintain the stability of the market. Is it a case of one cannot be seen to lose on the markets, where 300+ funds have been created since February, with the majority betting long.

These actions and a blind belief of stock performance have created a squeeze of immense proportions The CSRC is tasked with attempting to stabilise something they were warning about in December 2014. 

Those fund managers "speaking positively" [99.9%] are being given the financial muscle to create stability. The PBOC, via 3 financial houses, has been in the market for huge chunks of equity, in specific entities across all sectors (34 stocks in total). One assumes giving greater liquidity in the market or slowing the fall.

The Chinese Government think "stability" is now the main staple of the day. With such a large percentage margin trading, near double the reported figure in the FT (17%). The margins/leverage on Shanghai Stock Exchange Composite Index (SHCOMP) and Shenzhen Stock Exchange Composite Index (SZCOMP) and SouthChina Morning Post (SCMP), is actually near 30% of the entire market if one includes the grey market. With the grey being the biggest risk to any stability, due to the leverage multiples that have been offered compared to the CSRC regulated houses.

In December 2014 the CSRC carried out "out on-site inspection" of the majority of securities firms including margin trading and short selling, pledge-based repo and securities trading with repurchase agreement. Not only did they have concerns about the rolling of positions but the amount of leverage that was being offered.

The basis of the investigation was to head off any financial boom and bust type squeezes. It did just that with commodities speculation being reduced massively, with most across the board losing any form of support. Time will tell, but it’s wise not to bet against Goliath's determined to avoid any inference of failure.

Quite where the train of IPO's and delisting of Chinese entities from Global Exchanges goes now is a question that will need answering. The Chinese market is reliant of the Emperor's new clothes to bet long. Without the onslaught of IPO's to maintain silly valuations, people will quickly start to close their positions or avoid betting on the crap.

The crap will have other companies reversed into it, to enable a perceived quick route to a Chinese listing where the regulator doesn't like sellers! See Focus Media's attempts...Reuters (June 2015). This is not the only one either! SOE (State Owned Enterprises) are going to have a rough time of it shifting of the PRC (Peoples' Republic of China's) balance sheet and into the market.

All China’s main brokerages have agreed not to sell shares, perversely so the market can recover to 4500, currently 3,775.912. There's a long if ever there was one! Additionally they have had a whip round and put near $20b into a fund to assist the “Government” with stabilisation. Please note, the Chinese Government / PBOC is likely to be spending near $100B on a similar basis and has also been active in the market! 

Moving on to ASX, FTSE and AIM, with Australia waking up on a Monday to a shock of a horror. Lo and behold commodities dropped and so did the stock. Iron Ore producers were pleasingly punished, (they ignored the Chinese warnings from EMC:warnings from Xinchuang Li  and now the price-setters are making hay whilst the sun shines. It’s not the best market with demand down and the price setters’ appetite for any premium being unplayable. One wonders if there's two steel mills margined up to the hilt speculating not only on Copper but SHCOMP & SZCOMP. 

With one major shareholder in the “China’s Shanghai Chaos fund” needing a little collateral, the fund closed its entire position on Friday/Monday.  Not necessarily the best time after the article by the FT on copper, China’slow rates sound death knell for copper carry trade by Henry Sanderson. A very good piece, which covers the woes of the industry. The read across to other commodities is also likely. 

How does this impact on First Quantum Minerals (FQM), where their production is not only in breach of the ignored covenants but also raises serious questions of the viability of the project being a "bet on the appreciation of copper." (EMC:FQM Gloat & EMC:FQM Moving the goal posts). This is just after Canaccord Genuity places a buy note out with 20% ish upside.

How all these commodity crashes and the like have propped up China's economy is another question. With factory gate prices, inflation and growth all having an impact, is it still wise to pin the tail to circa 4.5% realistic growth when stripping out wastage? 

Caledonia Mining (CMCL) give a Q22015 production update  that is in line. With the company actively managing production grades and looking to maintain the longevity of Blank Mine it’s a positive update. With the revised investment plan looking to benefit production from 2016, the company is spending its cash wisely.

Production up, although comparatively speaking production costs are creeping up again! From $959/oz. on an all in sustaining cost (AISC) bases to $969/oz. AISC eroding 1% of the 4.7% increase in production from the previous quarter. Production is still down 7.4% on the LFL comparative quarter in 2014.

What is not commented on is the grades impacting on the AISC that have spiked near 7% on the comparative quarter from $903/oz. to today's $969/oz. Overall a positive but those costs will have to be kept in check. One assumes with the sinking of no 6 Winze this has had an impact on operational costs as well?

With limited time, Sierra Rutile's (SRX) share price recovery is justified on the back of today's Q22015 production update. Having previously found little hope for rutile prices, the company appear to be managing the company pro-actively.

SRX's cash costs have been managed very well. Costs reducing from $799/t in H1 2013, $609/t in H1 2014 to today’s $527/t., mostly on the back of an increase in Rutile production and they reiterate they’re on track to meet their rutile production guidance of 120,000 - 130,000 tonnes.

All this whilst planned shut-down of the Lanti Dredge Mine for maintenance and commencement of construction of the Gangama Dry Mine being on schedule and budget! With some cherry topping, completion of the Sembehun Dry Mine scoping study. It highlights long-term dry mining project with strong economics. One will have to wait and see. Perhaps some green shoots at long last, at about the money and a recent broker appointment, its wise not to rush in.

Atb Fraser

Morning Mumble: PLUS (Again), CEY's expectations in the future despite lower grades & more gold + Copper via TRQ +++Peppa Pig's owners...

Good Morning,

Yesterday's debacle has more repercussions than PLUS I think thought possible. One thing that "punters" should consider is the not so obvious "suitability questionnaire." As its common to kick a dog when it’s down, although things may not appear as bad as they first appear, there are questions that have been raised about Plus500's business model.

Having opened an account with PLUS with little more than a couple of clicks and trading was available. The notable difference was the lack of "proof of identity including the suitability" of product questionnaires. Somewhat of a large requirement and perhaps the main reason for the average revenue per user (ARPU) and no doubt the need for an increase in Average User Acquisition Cost (AUAC). Irrespective, thinking outside the box, if one has not completed a suitability questionnaire and has taken a loss, could this be misselling or similar? Perhaps even a fine. 

PLUS is something to watch as it unravels, both from a trading perspective but more so, if you held long, one assumes you a) trialled the product b) understood their procedures and c) were aware of the "Anti-Money Laundering (AML)" issues that were signalled on FTML and via Dan McCrum (if memory serves me correctly) last year. In addition to all the issues raised over the past 6-12 months. 

Two funds are clearly much better informed than us bears or they would not have been acquiring whilst the AML process was commenced a week ago, advertised on Facebook (yes no joke) and Twitter. 

Centamin (CEY), it would be wise for holders to catch up with the coverage today via a live webcast from 12:30pm 19th May 2015 for Capital Markets. The gist of it can be found, webcast slide presentation. With grades currently being below reserve average, one wonders how costs can be reduced! Perhaps CEY can enlighten us this afternoon. The sell is on mine life, but with limited cash returns at these levels its hard to get excited, unless of course another project starts to bear fruit. With limited exploration of the underground mining, its very hard to be confident with the 6g/t. If one was sceptical it looks more like a copy and paste job, 2016-19. See Page 26 onwards. 

We have another webcast in near 5 hours (3pm our time) from Turquoise Hill (TSX:TRQ & NYSE:TRQ) with an update on Oyu Tolgoi Underground Mine Development and Financing Plan. Up near 50% in 5 months it was wise to take all capital out on the rally. As the EMC covered in April, EMC: TRQ (Had investors paid attention to TRP as well they'd have saved around 90% of their monies!). 

As if by magic just a few days after their Q1 (& EMC: CMCL resource commentary), Caledonia Mining (CMCL) come out with a  resource upgrade, adding 491,000 tonnes from the Inferred to Indicated Resource categories and to add 47,000 tonnes of new inventory to Indicated Resource. With the price movement somewhat justified today, although please note its at depth its better than nothing! Obviously with Zimbabwean geo-political risks including the change from Chamber of Mines to the fidelity agreement. its not without its cons including grades. It wouldn't be a display of over-confidence for the small fry analysts to turn bullish (over the longer-term), although one eye needs to be kept on the Zimbabwean leadership! 

No time sadly for Entertainment One (ETO) full year Results, although disappointing film revenues that were rescued by Peppa and Co. Whether ETO can rescue the declines in film revenue is yet to be scene with four films in production, and some disappointment, the upside is there within family (read as kids) entertainment, where Peppa is "in America and soon to be in China."  Although its hard to find any justification for a share price above 360.

Atb Fraser

Morning Mumble: Centamin (CEY), Caledonia Mining (CMCL) and...Asian High Yield Bonds (Chinese Property)

Good Morning,

Some tangents this morning and very limited time. With Centamin Egypt (CEY) unaudited results for the Q1 2015 are identical to Q1 2015 Preliminary Production Results. With a dire ROE (Return on Equity) of a smidge under 10% (annualised around 38%) which is dire! With the warped nature of CEY not paying tax, simply put there's a requirement for a write-down.

Today's results certainly do not justify the uptick in the price, without more news 'on other developments' and expansion, CEY is about the money. We'll ignore the number of shares in issue being wrong and distorting performance slightly, but even so a performance improvement. CEY at the current gold price and likely outlook, is likely to be range bound. 

Staying in gold, Caledonia Mining (CMCL) Q1 are about the mark, costs a fraction up, profits down but dividend maintained. A positive for CMCL is the management have concluded that its best way forward is to focus on 'what's working at the moment.' To quote CMCL, Caledonia has increased its strategic and operational focus on the Blanket Mine and intends to close and dispose of non-core operations in Zambia and South Africa and to reduce operating and administrative expenses. Shareholders should be thankful the management realise this, often there is a tendency to spin too many plates. 

With a focus on costs, CMCL 'appear' to know what they need to do, one hopes there's not a raft of options or salary/bonus awards as a result of their likely successes in saving monies! Pending the success of the expansion plans for the Blanket Mine, expect some rewards going forward in 6-9 months. Other than a gold price improvement do not expect the stock to appreciate too much (in trend/range). With the absence of an indicated resource statement as defined in the PEA December 2014, confidence should be limited until the resources are measured with confidence, rather than "inferred currently. 

Sabmiller (SAB) will find it hard to justify any form of independence with results that are below the management forecasts. As a result of flat sales (poor I known) and the strength in the dollar SAB's bottom line has been impacted. Any strength, save for speculation of M&A is yet another justification to sell the stock. Its ironic soft drinks are performing better, perhaps as the trend suggests, SAB will have to work harder to maintain beer sales. The best hope for SAB is a take-out, over to Anheuser-Busch InBev whom today had a good justification to limit any premium if it were "going to make a move at the end of the month." 

There's a growing trend on the price of the "Asian High Yield Bonds", certainly for Chinese Property developers isn't looking good. With the Asian equities on a bull run, those higher leveraged companies would be wise to take advantage and raise cash to reduce debt. It’s always of concern when the Chinese Government (via State owned media) promotes speculation on the markets. The Shanghai Stock Exchange Composite Index (SHCOMP), has ironically mirrored the growth in speculation (margined trading). 

With second-home down-payment percentages becoming "flexible" it’s envisaged that there will be an uptick in down-payments and completions figures for the next set of data. As a result of the imbalance of supply, it’s likely those speculating will be knife catching to a degree. Over to Kaisa to look to sort its debt woes out, its certainly at the price for their bonds, save for Sunac interventions. Zhang Zhiron's majority shareholder in Glorious Property is at risk of being reduced. Zhang should thank his lucky starts a privatisation motion he made previously was rejected! 

Limited time,

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: Oil the support...and a late night Cocoa or Coffee & a telling off for certain holders.

Good Morning, Coffee! Well cheaper coffee!

Nearly 1 month ago, EMC - Morning Mumble: China Data yet again contradicting those overly bullish analysts & shorters heaven! Certainly the Christmas Cheer! See: Brent support...With Brent Crude trading at $51.33/bbl the wiser folks will be reducing shorts or hedging as the odds of greater or severe drops has been reduced but is far from disappeared.  

Yesterday the EU reported the drop in consumer prices that has only gone to assist the negative outlook (Bloomberg: consumer prices). The consequence being that it has improved the likelihood of the oil price staying lower for longer and limit the potential of a recovery above $64/bbl (Brent) (approx. and under review). Over to the EU for the stimulus.

The speculators (long) are aware of risks with a short-term drop in Brent yesterday below $51/bbl to $49.66/bbl indicating there's a good chance of another step-down, especially if speculators absent themselves. Over to OPEC and the rebel components to force an emergency meeting to cut production if anything near $43.20/bbls is seen. One could almost place a Star Wars theme to the story and we would be wise to keep a close eye on ICE Futures Europe (MarketWatch Article) for a new lows in futures.

Any positive movement circa $3.50-$6/bbl (pending who you read) in futures will create speculation within shipping, the higher figure being required due to charter rates being significantly higher. One would be very surprised if ultra-slow steaming is introduced a la 2009, save for some Chinese influence. The Chinese seem willing to bail out higher cost South American countries rather than see supply reduced Chinese, Venezuelan presidents vow enhanced financing cooperation (Xinhua Net)

Will ignore the fact that ICE Futures Europe are to start cocoa contracts in Euros from April and save it for another day. One hopes United Cacao (CHOC) will be aided by this seeing as prices have fallen to the lows of 2010. With chocolatiers (term used loosely for some companies mentioning no names) committed to higher prices, could Cocoa have the glut that Oil is seeing today in 12 months? Buyers are totally absent from immediate physical markets (cash). Price increases will obviously have to adjust to demand, thus the consumer being the price dictator will dictate the supply chain. Amazingly similar to coffee, with a drop in prices 24-27% pending supply. Who'd have thought it...see my commentary on FTML in October 2014 for more detail on coffee.

With food pricing becoming more transparent globally, one envisages consistent pricing with greater speculation during periods of uncertainty. This has not been the case, as evidenced by the spike in coffee last year, which was unfounded (the short). We have Tesco's informing us of their trading update and plan of action. plus flogging Blinkbox and their Broadband Customers to TalkTalk. Goodbye Divi...but its a lot better than the market thought! Later perhaps get some response from Duncan as he's been on the ball so far!

As a side thought to TalkTalk, do parties join up to Tesco on price or because they don't want to be part of another network. One suspects customer loyalty was the primary focus...good luck with the margins there, albeit it would be interesting to see the acquisition costs

Caledonia Mining (CMCL) 2014 Production Update and 2015 Production Outlook does not bode well for the recovering SP with grade declines a poignant reminder of the issues facing miners on a day to day basis. Its disappointing the lack of commentary on how the recent oil price drops have impacted on CMCL energy costs and all in costs. The un-interruptible power supply agreement must be under review in light of diesel costs coming down in Zimbabwe. Is it time to review their needs and consider the stand-by generation costs once again seeing as they're paying a hefty premium for assured supply which still has interruptions (albeit the company perceive these as acceptable.) Hope/Jam placed on the revised investment plan. It will be very surprising if CMCL hit the same production as the year just gone...

Kenmare Resources (KMR) decide today's update should be related to the share price which is exactly where it should be in light of the risks associated with refinancing and Iluka Resources determined and demand approach to their Due Diligence. One can only assume Iluka Resources will know beyond doubt if KMR is for them. With a significant amount of leverage again Creditors (ransom), Iluka may just be able to structure the deal so all KMR holders debt or equity take a hair cut in the process. Not one for those whom like premium bond style investing.

The words "potential default" should not be ignored in this RNS nor should the returns to shareholders when compared to associated board costs and remuneration. Clearly I should consider another career...perhaps at the Pru? If certain parties are reading, they'll be wise to think about my thoughts once again about KMR. Forget told you so, parties would be wise to consider what justification there was in holding the stock with the outlook, the debt and management. You have been told.

Some cheer for Victoria Oil & Gas (VOG) whom are now in receipt of the $6.4m balance of $10.1m Cash Call Received from RSM. However there's gossip that as a result of Oil declining significantly certain parties wish to revisit their pricing contracts. Perhaps VOG will update the market on this if it's correct or clarify where possible the contract terms. Obviously there's more to the price than just oil, security of supply, economic and environmental benefits, however at the end of the dead, one is always wise to consider there bottom line (the client). The risk is common-sense and should not just be ignored as unlikely...

Now as a frequent traveller on trains the intention of thetrainline.com (I'm refusing to link) the RNS cannot be ignored. The deal with ATOC is viable, however one cannot help but wonder the replication of the APP and business now the value has been placed on the IPO. Those die hard IPO's of IT will be obviously queuing up, the shorts would be wise to wait post the steam and puff.

With rumours bouncing around regarding Circle Oil (COP), the director changes cannot go without a mention over the past two days, with the appointment of Susan Prior as Group Finance Director and the appointment of Mssrs Antony Maris and David MacFarlane as Non-Executive Directors of the Company. Next door to Gulfsands (GPX) whom are not without issues above and beyond the current global pricing crisis for the minnows, could we be seeing some more consolidation? With casualties starting to come thick and fast, Europa Oil & Gas (EOG) states the obvious today with an update. In the absence of any improvement in oil futures above circa 20% one has to question why you would hold any tiddler stocks save for higher risk take-out speculation nevermind the debt issues of certain companies!

With an unsurprising setback in Sirius Minerals (SXX) application process things bobble along without too many issues. Phosphate prices will be further under pressure due to declines in food prices this will only benefit SXX's marketing approach and offtake agreement process.

Atb Fraser  

Proof-reading no doubt required.