Morning Mumble: Italics, Copper, along comes a Chinese Stimulus (iron ore?) and Anglo (In brief).

Good Morning,

It’s been about the busiest time on the markets for as long as one cares to remember, more so the demands of one’s time. 

Not only has Glencore's African copper review (ACR) made specific trades a kin to shooting fish in a barrel, but thanks in part by Freeport-McMoRan’s (NYSE: FCX) copper reduction in copper sales of 150 million pounds per year (for 2),  (Circa 68,038T's per annum). There's an avoidance to say much more on copper, at the moment.

One trader that was sweating when Glencore (GLEN) went significantly below 145, can now have a nap whilst the shorts are forced to close by Glencore's lack of confirmation (Shrewd). Are they? Do they need to? How will it be done? Glencore still eyeing options to raise $2.5bn in new equity (FT). We'll await Glencore's updates. Perhaps after they're done unwinding a few items aided conveniently by the ACR, it will give them some clarity on the balance sheet.

China have come out and acknowledged how bad it is (or how good it is about to get), with an intention to stimulate their way out of this rout, glut or downturn (Reuters). You can read this many ways, depending on how one is allowed to write the news. 

Of course, China's stimulus will be supported by the controls that are being introduced by the China Securities Regulatory Commission (CSR) including the soon-to-be married SHCOMP circuit breaker (CNBC). No mention of the reforms regarding to automatic trading? Or selling for that matter! There's more to this, but we're waiting on clarity on a couple of things before commentating further. With some of the tones suggesting there will be limited selling, ever...some long onlys will like this style!

The stimulus woke the iron ore price and likewise the producers appreciated the gesture, RIO/BLT/FMG and even some Jo'burg (JSE) marginal that have formed an EMC fan club. It’s a bounce and a half, perhaps with over-confidence on certain companies that are far from out of the woods. The low cost producers are viable, it's the "leveraged" higher cost crap that is rising that should raise an eyebrow or two. Perhaps, in answer to certain company directors’ prayers, they are now able to consider raising a few quid?  

As a positive, Fortescue Metals Group’s (ASX: FMG’s) white knights may now just be tempted to pay somewhere near Twiggy’s asking price. Shorts would be wise to note this potential event, with the Australian FIRB (Foreign Investment Review Board) unlikely to find any issues with an infrastructure deal. FMG have little choice but to do conduct a deal soon or risk the surplus over the longer-term weakening their hand.

Andrew ‘Twiggy’ Forrest may dislike the current offer on the table, but any deal circa $2.5B+ back on the balance sheet will give the stock more confidence. BaoSteel (EMC: June BaoSteel) are the likely front runners although, China's Hebei Iron & Steel Group and Tewoo Group (separately), will not discount any such deal.  

Keeping with the tone, Anglo American (AAL) has risen today, on the back of "selling" Rustenburg. Whether it'll be cash, shares or a mix, is immaterial to the market celebrating that AAL have removed a boil on the balance sheet. The carrying value from memory was well over £300M (please check), so there's circa £240M of Tipp-ex required on AAL’s part.

What the market should perhaps pay attention to is Sibanye. This company has in essence been "given" a liability, if one is to believe the value of the deal. Sibanye are obviously confident that they can return the operations to profitability, by the very structure of the deal. However, they won't have lost anywhere near as much as AAL! 

Have AAL sold/flogged or gifted an "asset" away when the PGM sector is starting to look like it may actually bear some modest fruit (FT: Platinum output to be hit by investment cut). 

If Sibanye can return the mine to profitability, it will be a testament to the managements understanding of mining and operations. Sibanye have a very good understanding of legacy assets, with keen eyes. It will obviously raise very sensible questions about whom should be running AAL, in the event of a turnaround. More so, what of the Scoliosis and White-Finger class action suits? Has this liability been passed on with the asset? Or are AAL fully on the hook for $1 billion.  

All for now, noted on Monitise. As a side thought, what's the unit cost for Vedanta (VED) on its iron ore operations?

Atb Fraser

Morning Mumble: Inventory, How much Copper do the majors hold? VEDanta's I've tried to be positive & ANTO'fghastly buys 50% Barrick's Zaldivar

Good Morning,

What is often not considered in commodity cycles is the level of inventories. Admittedly this can act as a float and reserve. How much do the majors hold in inventories, at what price and how is hedged. We know Glencore (GLEN) had 331Kt in the year accounts for copper inventory. 

KAZ Minerals do not separate their inventory but estimates suggest a modest 27,957/t's of finished product, excluding goods in transit. KAZ, are likely to be better managed with their need for cashflow but also they have issues at the current copper price levels, paying the market near 60 cents a lb if one considers their all in costs. 

KAZ had a Q2 & H1 Update yesterday, if you're so inclined or are perhaps are one of the workers FQM are paying to twiddle their thumbs at Sentinel? 

Vedanta want you to believe they're a Nickel producer (at the moment) seeing as all other operating subsidiaries have taken a spanking on price. Over to Tom Albanese, CEO of a bunch of companies held within a complicated structure, with a hope they can get their hands on some Cairn India cash by year end:

"In Q1 we saw continued volatility in commodity prices, but Zinc has held up quite well in view of its strong fundamentals and is now the largest contributor to our EBITDA. We continue to focus on improving efficiency, costs, and enhancing production across our well-invested asset base. We have broken ground at the Gamsberg Zinc project in South Africa, improved production at Konkola mines in Zambia and remain on track to re-start iron ore production at Goa following the monsoons. Our diversified business model supported by strong operating strengths and structurally low cost assets will enable robust long term returns to stakeholders."

So, we'll focus on the good hand (Zinc) as Vedanta do not want us not look at the other hand, we'll keep it short. Vedanta have a very credible mined metal production increased of 42% to 232,162 tonnes, (Q1 2014, 163,131 tonnes), but strangely the bottom line is being punished. 

On the one hand, there's a positive production increase and costs being half decent, significant in numbers in fact, but yet at EBITDA level it’s a paltry 11%. In the absence of an accountancy qualification, is it not fair to suggest costs in the chain have risen somewhere? One has a suspicion the amendments to the Mines and Minerals Development Rights (MMDR) Act, means producers have to shovel more for the same money. 

So with taxation rates rising into 2016 as guided by the Indian Government, VED are going to have to focus further on the bottom line just to maintain existing profitability. Unless one has missed it, analysts are not factoring in the CSR Levy at 2.5%, previously 2% from memory plus the increases in corporation tax? With a campaign going on to lower the District Mineral Foundation (DMF) tax as miners in India are punished, there may be some hope. 

With a bunch of Aluminium producers campaigning for an increase in the import tax on ingots, it’s not surprising VED are are reviewing restructuring some of our high cost operations in the Aluminium segment. (Source: India worth a read with a mention of VED's subsidiary Balco). VED's aluminium contribution at EBITDA is negative. One just hopes for VED's sake there isn't a slump in Zinc prices, as it’s got a very large burden on the balance sheet currently. 

VED's net debt, only up a modest $300M. Over to VED to cover their own financial update, 

Financial Update

The Company had total cash and liquid investments of approximately US$8.2 billion and undrawn committed facilities of US$1.1 billion as at 30 June 2015. Gross debt and net debt was at US$17.0 billion and US$8.8 billion, respectively, at 30 June 2015, slightly higher than US$16.7 billion and US$8.5 billion at 31 March 2015, on account of funding for projects and higher working capital.

As at 30 June 2015, FY2016 debt maturities includes US$350 million of bank loans at Vedanta Plc for which refinancing is in place and US$ 2.1 billion of term debt at the subsidiaries, of which c.$400 mn has already been tied up and the balance is to be rolled over or refinanced through longer term debt. In FY2017, Vedanta Plc has debt maturities of US$2 billion, for which we are in an advanced stage of discussion with the banks and these are expected to be refinanced by the end of calendar year 2015, while subsidiaries have maturities of US$1.3 billion for which we are evaluating different structures and options.

Antofagasta will acquire a 50% interest in Compañia Minera Zaldívar Limitada (Zaldivar), and will become the operator of the Zaldivar copper mine. My question being, is it "expected to be immediately accretive to Antofagasta's earnings and cash flow per share."? Really? Saves Barrick (NYSE: ABX) from flogging some more of Acacia Mining! Or does it? 

The final thought goes to Syrah Resources, would you stump some cash up? 

Atb Fraser