Morning Mumble: Chinese PMI Services & Manufacturing Data (deflation), the western capital ducks fly home.

Good Morning, Oops, Good Afternoon after typing up and forgetting to publish. 

With such a glut of PMI data, the inbox was rammed with everything from the positives of the Czech data to the woes of China and Nikkei India Manufacturing PMI™. 

The Chinese Caixin General Services PMI™ & General Manufacturing PMI™ data pre-empted the sell-off in Rio Tinto (RIO), BLT (BHP Billiton) and Fortescue Metals Group (FMG) in Australia. This was whilst the profit taking on oil occurred (the money for old rope trade of August). Why papers are suggesting traders got torched, when in all probability, the shorts caused the spike en mass closing.

Chinese/Indian PMI data has not supported the Iron Ore (FE62) price, in fact adding greater discounts to inferior products (discount for lower quality iron ore) - watch out Atlas Iron at 3 Aussie cents a share, the graph won’t look too bad! The FE62 price has had some support, thanks in part to a redirection of supplies because of Chinese WW2 celebrations and the Athletic events in Beijing. 

The events impacted/distorted orders provided some market support thanks to the air pollution orders covering August 20- 3rd September? There was also immediate premium applied to the majority of commodities handled at Tianjin after the explosion. Tianjin’s major imports after cars/autos are light trucking and containers, are Ethylene (15% of national supply), 15% of Wheat imports and 30% of the domestic steel exports. Not a minor port, but capacity easily filled elsewhere. 

There appears to be a conflict in the Chinese leadership, one perhaps that could end with a few changes. As one new source of information put it, the Chinese are now witch hunting people even for saying "sell" on Chinese Bulletin Boards. 

We had known for a while about the issues in the Chinese stock market. Likewise, Li's trading accounts being suspended and his two or was it three interviews with "regulatory forces". Now Li now has no working trading account. On the plus side, Li's one of the lucky ones being "permitted/allowed" to withdraw all his monies. 

The actions of the Chinese Government is now one of fear, with arrests across all areas of the stock market. The charges are listed as, i) manipulation ii) profiting from the Chinese Government intervention iii) assisting others to profit iv) spreading rumour (whether false or accurate) v) accepting bribes to provide information of Government intervention. 

We'll just rephrase the i-v, i) Chinese Government purchases, ii) alleged Chinese senior government selling stock amazingly just as the "Government Team" is buying, iii) brokers and "team Government" assisting all iv) Chinese news channels encouraging buying and open threats to those considering selling anything v) as item ii, where "the senior hierarchy" have been almost immune to the stock market movements. 

Risk off today? Why not, we love a market that's incapable of assessing fundamentals and is merely crowd driven. Although the disappointment is coming to those with South Africa exposure. Not only have wage and energy costs not helped matters, but more so the political outlook and 'uncertainty' may impact on operations as redundancies become more significant. 

Anglo American's woes have been made worse thanks to Alrosa. Anyone want to buy a 'once upon a star decent entity known as De Beers?' It would appear not...not only the price reduction, but Alrosa it appears have realised 'forcing ones contractually obliged long-term sight-holders to purchase might be a bad idea!' 

Atb Fraser 

Morning Mumble: Prozac Anyone? Maybe a Coffee? Dr Copper & all taking a spanking - whilst likening Glencore's webcast to Star Trek's Captain Kirk & Engineer Scotty...plus the need to actually do a full days work whilst on Holiday. RIO finally surpasses the 2200 target price.

Good Afternoon, 

Back up, albeit briefly... 

It's been a while! Although far from inactive - it has been fun to relax and enjoy the holidays.

The views and positions here have pleasingly been validated by the market. A pleasant bet being honoured on RIO hitting (and surpassing) my target price of 2200 pence today! Now, with a tangent look at Glencore, with some analogies to Star Trek.

We'll ignore what the critics stated about the target prices here and on FTML, with some pleasing emails of acknowledgement. Stopped clock or not (as some called it here) there was no deviation. Not because of stubbornness, but the indicators have only become a) apparent and b) a lot worse than even those reading here thought. So why would one change their view over the longer-term? Perhaps revisit the analysis but certainly not change this view, at the moment.

Initial analysis started to appear more positive after Glencore’s webcast on the 2015 half-year report. If you have a position in any stock, in any country, it's sensible to consider the webcast and in particular the defensive body language displayed and the wide range of earnings guidance. Also, as a validation, a quick visit to Fortescue Metals Group (FMG) annual results that aided the selloff in Australia last night.

In the webcast (45 mins onwards (Q&A) section), it was noted that some analysts were rightfully enquiring about the leveraged nature of the balance sheet, specifically what flexibility there is in the working capital. 

The market is now waking up to the acknowledgement of Glencore’s wider guidance of $2.7-$3.7bn (Page 9 in Presentation). Being near 2 months into H2, one surely should have been able to be more specific or is there lot of hope being priced in? It does suggest there's a lack of confidence in their operating divisions including Russian Wheat export taxes, Canada grain harvests and the copper / oil woes and finally, China.  Is this representative of the current wider global theme?

Least we not forget Glencore's thermal coal adjustments. Despite assertions of profitability and low costs, why did Glencore have “no other option but to scale back 18MT’s of thermal coal per annum.” Is it implying that Glencore are not understanding the full extent of the market deterioration in commodities, or perhaps across the board? Not a good thing if you operate in such fields.

There are a number of issues Glencore's copper division appear to have missed. One being that the "sudden" appearance of significant physical, that is suggesting a destocking of inventories. We are even starting to think that it suggests the Asian market had stored significantly more than what the market had allowed for in warehouses and of those cashing out (by pulling levers).

Having had a target price for Glencore of 165 since from Xstrata (XTA) merger completion on the 2 May 2013. The risks are still there in China, Russia, Canada, in fact every area that Glencore has an operating divisions, but more importantly net debt and its ratings, inventory valuations (and consequences of hedging), whilst being in a global deflationary environment.

Glencore are in a position of being forced to sell off assets, allegedly non-prime/central to Glencore's needs. We note Glencore announced the sale of Tampakan, Falcondo and Sipilou on the 14th August. The buyer, a subsidiary of the Alcantara Group (via their subsidiary Indophil Resources NL) appear to have benefited from Glencore's woes. Not forgetting that the sale also proves the case that yet more volume is hitting the market. Or are Glencore and the market believing that Indophil purchased these assets to do absolutely nothing with them? “Give o’er…” as Polonius said in Hamlet!

There's going to be a temptation by funds to start averaging down given the current price compared to the IPO. We'll ignore the warped belief of the investment case for Glencore, but some 'averaging' down will give risk to shorts in the interim. Without further woes in the price of oil, copper and agri-commodities it's “about the price” (for now), with more volume likely around the 150 pence.

Simply, Glencore is no-longer a conviction short, until further testing and understanding. Namely, “how bad is it really in China?” China’s next about turn in policies, devaluation and protectionism is likely to answer that. To the detriment, of course, of their trading partners – both Asian and global.

It’s ironic that Glencore go as far as to blame 'aggressive' short-selling on copper woes. Hang on a minute, don't Glencore have a copper trading desk? It would be a fair statement if they were but a "mere" producer blaming the woes of the market, rather than a fully integrated Goliath.

It’s rather taking the biscuit to point the finger when you have a capital intensive trading / marketing division? Were GLEN the counter-parties of such positions? What is the impact of the Russian export taxation on profits, with most trading houses with active positions from June taking a large hit?

If we liken Ivan Glasenberg to Captain Kirk and Steven Kalmin to Scotty the "engineer" from Star Trek, it is bemusing to review the discussions in the webcast regarding debt, working capital and trading/financing deals (Circa 50 mins onwards). 

When pushed on the debt position, debt rating and the hypothetical situation of $2/lb copper, Capt. Kirk/Ivan explained the benefits of being a trading house etc...Where there is flexibility in business model. Steve aka Scotty was able to step up the power or reduce it accordingly by these magic levers to reduce working capital, change the interest rate on internal lending to trading / marketing or look to derisk financing positions with third parties. Warp speed anyone? Perhaps Scotty in reality is “giving all he can Captain?!”

Admittedly there's evidence in the webcast of both Capt. Kirk and Scotty not understanding the business. Glencore need to reduce their debt by about $8B and essentially by as much as the carrying value of the inventories. Why was there no comment on the reduction in volumes across their divisions? After all it’s essential to trading to have volume.

Glencore’s biggest concern is its inability to call the market. One would have thought the overall theme of a market would have enabled better guidance rather than statements about “China being weaker than anyone envisaged.”

Likewise, Scotty suggested, that one can simply reduce inventories and/or working capital in addition to intra-company loan rates. This may actually be harder than what Glencore have previously done in the past. Especially in light of volumes of commodities available in the short-term. Their selling, could actually warp (speed) the market further (at least in the very short-term).

Glencore have failed to consider the currency benefits of a strong dollar on the marginal producers, that are given (yet more) lifelines. Especially as America “hops along” to an interest rate increase (but no doubt delayed by 9 months+).

The currency beneficiation has not only helped the likes of Kaz Minerals and FQM stay in business, but most other leveraged players. The ability of producers to ramp up to reduce the costs further, whilst  putting a glut on the market, is under-appreciated (at present).

Admittedly there's some hope, Glencore think the worst is over in agriculture - with the new wheat export tax now having visibility. Glencore appear to think there's near balance of supply and demand in copper and the market price is false. Ironically those statements were made just before the PMI data for China (1). The market is waking up to just how leveraged and unstable/weak China was, but one suspects not how weak it is. Could Glencore have been overly optimistic, so far it would appear they are, and perhaps will still be. 

An example being copper piping, where over the weekend Li informs us there's a couple of cargoes going for a proverbial song. Has someone perhaps been caught on the hop contractually? More on this later, if we manage to find out a price.

Yet in contrast to these cargoes (as a snap shot), analysts are banking on China spending on the electricity supply grid and infrastructure. This may actually be a pointless exercise as energy use has reduced near 3%, one cannot see China being able to afford the previous levels of wastage to support the economy.

Whilst avoiding being gleeful of near 4 years work in commodities, one suspects the market is now at risk of capitulating to a bear market, with the wider ramifications needing further analysis.

For copper, there are contradictory indicators coming out of the sector. We have Platt's* on the one hand forecasting growth in 2015 of near 5% whereas ICSG (International Copper Study Group) at negative 3%* (Source: ICSG PDF File). That's some range considering what the implications are at an economic level, although more recently there have been a few production issues in the market that may provide support (based on a reducing supply). 

Like in China, are we now going to see the forced selling of stock pledged/secured against loans or mortgages globally? What of the collateralised loans? Or perhaps with a hope of security “in cash” now being forced to sell. An example being the sale by Martin Rowley of First Quantum Minerals. Whatever the reason behind Martin’s sale, one suspects there’s going to be more globally, whether current or former management of most companies. It’s certainly the case in China, Asian and Pacific economies.

Freeport-McMoRan (FCX) are a prime example of expanding into the rout of commodities. They are yet to press the button for equity (perhaps due to lack of interest). Are they waiting for glimmers of hope in the commodity prices? One suspects they cannot wait much longer without a restructuring/raising.

China have significant problems that without a multi-pronged approach to their economy, without some form of foundation building rather than bubble focus, their economy will continue to raise concerns. The next trend (reiteration) is likely to be PFI (Private finance initiatives) or PPP's (Public Private Partnerships).

The Chinese have very cunningly been creating their own supply chains, whether Aluminium, Steel, Copper, Nickel, Coal to petroleum. This is evidenced in Taiwan, where they have felt the might of China in the semiconductor market.

Taiwan’s semiconductor exports were significantly larger than China, their market was near 3 times the size of Chinese in 2009 but is now is en par with the Chinese market. Like solar panels in Germany, this expansion into a commercial space and supply has hurt them. Many Emerging Markets will have to consider the implications of the determination of a weakness in their currency, with a reducing demand and reducing level of investment in their countries. Examples being Taiwan, Thailand, Korea and Japan.

If one considers read across of the semiconductor market in Taiwan to the copper draw/demand on copper in China. Then China’s demand/needs may not change that much, but what may is the demand from predominantly emerging Asian markets that have relied upon China. These markets have only just woken up to the fact their industries have been replaced/replicated.  

One cannot ignore the compliment from a devout critic of the views here, where "the macro environment commentary on China/Asia and India is very accurate and almost psychic here", (to quote one reader. Maybe it's only one reader!

May be a little biased of course, but one would be hard to disagree in light of the carnage on the markets and ensuing ‘recorrection’, reading back and comparing here with the realities of the PMI data and those of the bulls of the commodities. 

Why did this blog post became so popular over the weekend, EMC: Fanya Metal Exchange. What of others? Perhaps it was after this article about angry investors capturing the head of Fanya metals exchange (FT). Quite how much commodity do physical ETFS have, what are the implications for the Jo'burg PGM ETF's etc..With humour, should one be factoring in security costs for under-performing companies?  

Atb Fraser

*Platt's from memory does not distinguish between refined and unrefined copper whereas ICSG is focussed on refined copper. 

1) Add Diary of Release Dates for PMI information to your diary. 

Morning Mumble: Oil and Metal woes, Diageo (DGE), China (PMI) & KMR pricing assumptions + Dialight (DIA/Dire)

Good Morning,

With the realities now being acknowledged within the commodity sector (and the analysts) the cycle is starting to enact change, with yesterday's piece in the FT Oil groups have shelved $200bn in new projects as low prices bite and Gulf news Projects worth $200b cancelled due to low oil prices. One suspects the latter was a twist on reporting from FT and CNBC. The theme being in both oil and metals, there is a headwind of efficiencies and stress on suppliers, whether labour or capital equipment. (Impact for support services?).

Having had the opportunity to meet up with a few on Friday, as the chap morphed into a three, its quite clear the consensus is now aware of what can be only described as an anomaly in China's data disclosure. If the GDP disclosure matched that of SEO's public records on profits, then one would perhaps be forgiving. 

In discussions with Li, SEO's are being somewhat generous with the facts of their profits. What has been disclosed is an outright reduction in revenues and profits, contrary to the GDP suggestions.

One could even argue that, if the accounts were fully public, we'd all have to turn into a forensic accountants. The recognition of revenues and profits including those on "goods in transit" to suppliers is near a farce. Something that perhaps capital equipment manufacturers in America have taken lessons on, or with humour, perhaps they've learnt from Diageo (DGE). We'll come back to that another time (Bloomberg: Diageo queried by SEC).

This is the latest for Diageo, earlier in the year as they resorted to a negative cashflow model for all their suppliers, by paying them after 90 days. Something supermarket suppliers have been accustomed to. DGE is under pressure to turnaround a company that has contracting market share in North America. It’s hoped higher prices will offset this, but perhaps they would be wiser to react to market trends than they have been. Being slow to react to flavoured this and that, whilst also offering conventional drinks. The concern being, have Diageo stuffed their supply chain? A temporary beat followed by misses, albeit small, time will tell. 

The market is now nervous of this rout in commodities, with the larger trading houses withdrawing from positions across the board. This is being in part replicate in agri-commodities (Agricultural Commodities). Simply, because we like simple here, the demand for commodities has contracted, more so, rather than keep a healthy balance of stocks, Chinese companies (whether state or private) have learnt from their iron ore trading comrades. Commodities are not in short supply, as the grab for Nickel pre Indonesia's unprocessed ore ban has made them realised.

The question that is now being considered, "if China isn't suffering to the level the west has been informed?" Why is there a categorical absence of speculation on Commodities (deleveraging and margin contraction)? What could be described as a temporary quad-divergence in pricing, demand, production, supply and stockpiles. There appears to be a full on headwind of over-supply, reducing demand, reducing prices and deleveraging, whilst an absence of speculation. On the flip the side, the dollar is talked up, torching those higher cost producers. 

The Caixin Flash China General Manufacturing PMI™ should perhaps be considered the most accurate PMI data for some time. Not only on the basis of a greater understanding of the Chinese economy, but more so the employment concerns that are rising in China. Perhaps the wider press would hire the odd drone hobbyist to fly over a few areas where capital equipment is stored awaiting sale. 

What does the deflationary impact and subsequent deleveraging means on a global scale? Last time the contraction occurred, there was a significant downturn and prices tanked. Whether commodities will go as low is another question, but more importantly, the bulls are not expecting a stockpiling (yet). Whether on leverage (margin), financed deals or more importantly on the bottom line there's something missing. We shall of course be somewhat fixated with the retrospective downgrades in sector and those associated. 

Last week, we have gossip of African consolidation in the Oil and Gas sector, which may actually be more credible and having potential. We had Aggreko (AGK) whom have now shown they are not immune to the cycle of power generation. There's one brave chap that believes 645 pence or thereabouts is what AGK is valued at...whom I am I to disagree. Date for diary, Interim Results for the six months ended 30 June 2015 and its Business Priorities on Thursday 6 August 2015 at 7am (BST).

AGK, may have some resilience and it's perhaps premature to suggest 645 pence is a decent target. After taking on debt to return monies to shareholders, this is just one company that is going to suffer with a focus on its own equity and margins. With AGK's exposure to shale, EMEA and Asia, Pacific and Australia (APAC), whilst considering Japan, revenues are now under pressure. APAC revenues are reliant on a mining model...whilst also being exposed to New Zealand, and Indonesia.

Aggreko is now suffering from previous FDI, in all their operation areas, where energy generation shortfalls have been addressed. AGK's cycle means they're more than likely to survive, whereas APR will, but with a different valuation and reduced ability to generate to revenue (profit). This will be read across the market about cashflow and leverage (debt).

On a similar theme, one had thought Kenmare Resources (KMR) had rented some diesel-powered electricity generators from AGK. Perhaps they can remain fully operational during the Southern Hemisphere summer months of December, January and February when supply is most unstable but not any other times? Were these generators not meant to be on stand-by? Insufficient? 

Iluka Resources, whom have cleverly engineered a waiting game. If Carlsberg did takeovers, Iluka Resources would be the model. They've sat back and let Kenmare Resources (KMR) destroy their value and any argument for a price increase. KMR should simply roll-over. Today's Q2 & H1 2015 Production Report is dire, over to KMR,

Overview

• H1 2015 production was constrained by 57 days of storm related grid power outages in Q1 and sporadic power outages in Q2, as a result of remedial work to the power line.
• Power stability is expected to improve significantly following the installation of new power infrastructure in Q3.
• Ilmenite production in H1 decreased 27% to 324,100 tonnes (H1 2014: 445,600 tonnes).
• Zircon production in H1 increased 11% to 23,800 tonnes (H1 2014: 21,400 tonnes).
• Total shipments of finished products in H1 increased 3% to 412,000 tonnes (H1 2014: 399,000 tonnes).
• Cost control measures succeeding and achieving significant cost savings.
• Project Loan Amendment dated 29 April, 2015 now effective.

Statement from Michael Carvill, Managing Director: 

"Production in H1 2015 was severely impacted by weather related power outages in Q1. Production in Q2 improved, though remained hampered by remedial work to the power line and unofficial industrial action in June - reducing operating hours for the plant. The outlook for production in H2 looks stronger as the national power utility commissions equipment that will increase grid power capacity and stability."

Date for diary, 28 August 2015.

The positive for Iluka/KMR is ilmenite is likely to have some positive support over the coming year. With Chinese domestic production reduced significantly. Remembering that ilmenite is a by-product of Chinese iron-ore mining, with their costs and any by-product credits making production unwarranted. With costs under control, the electrical issues need to be fully considered. If Iluka are to do anything, it will be sooner rather than later. 

With the appointment of John Ensall as the Lender Approved Non-Executive Director. We could "perhaps suggest" a few areas where some savings could be made. With the board costing near $2.2M year, is a little headroom, save $1.5m attributable to three directors. 

Lonmin (LMI) continues to fall, flying through the FTSE 350 quicker than it did 250. LMI needs cash at all levels and with its work force and furnaces now considered a liability, one would be wise not to catch the knife. It'll no doubt bounce or be bought out, does anyone need to rush or pay much of a premium? We'd be surprised. 

With Nickel dropping below its key $5/lb support level, should we start to consider the likes of Horizonte Minerals (HZM). with their price assumptions on the PFS. Remembering its sensible to sell projects on past economics with "headroom" and cream for an increasing price  Just how much cash does the company have left? EMC: HZM Sarcasm, how times change both in Nickel and viewpoint. From previously being a bull in the Nickel space, when the Chinese withdrew from being a buyer in the Market (October 2014). 

At the weekend I was asked about my view for Dialight (DIA), today's  half yearly report validates the . EMC view (January 2014) and EMC June 2015 . Although as we're now being respectful, we'll ignore the abuse at the time. Its certainly getting there, and the view has not changed. We call this progressive long-term investing, just short. Perhaps one could be described as a stale short in DIA?

Atb Fraser

Hopefully it makes sense...

Morning Mumble: Tangents, (Bank Holiday) Chinese PMI Data & GDP down at 6.8% and PMI Data, India, Indonesia and China + Robotics.

Good Morning, or as my daughter greeted me this morning, Happy Me Birthday, she's decided to have another this year! 

A significant amount of news came out, (unfortunately). China's economy seen slowing to 6.8 percent in Q2 - state think tank. The Markit PMI data was released Chinese PMI Data, Indonesian PMI Data and Indian PMI Data (all worth a read). With similar themes a slowing down, deterioration and reducing rates of growth. India appears to be showing some resilience after a corking data set in March, albeit not absent of the same woes. 

There is a distinct absence of commentary on the shift in Chinese labour patterns and the implications of such changes. Automation is rapidly gaining traction in the Chinese economy, making the choice viable as salaries have increased in addition to the production wastage. Perhaps it needs to be defined as the silent threat for China and a consequence of its own achievements and growth. 

The Chinese government stimulus has little choice but to also focus on self-employment and small business development. Although China's growth will be positive, the slowdown is going to demand greater efficiencies both in production and salary costs, and as a consequence improvement in margins (read as reduced wastage). A bottom up approach to the economy is likely to be slower in growth terms but make for a stronger economy longer term, rather than wasted stimulus.

Over the longer-term labour demands and needs will be less intensive, with a knock-on readjustment in wages and a contraction of salaries in manufacturing. Obviously with the state owned businesses initiating wage cuts for senior managers back in January (2015), this will have warped impact on the current data but the trend and significance should not be ignored. 

The issues (automation and efficiency) are now being seen as having ay modest impact on the Chinese urban employment figures. China is focusing, or attempting to focus on the development of the "internet of things" (known in China as Internet Plus) in order to offset the modest the change in the economy. 

One could make a very good case for the wastage being cut out of the economy, leaving a normalised growth.

Have a good bank holiday Monday! 

Atb Fraser

Morning Mumble: Debt overhang (Negative Equity) and...GMD, Copper and ESG, the decline continues.

Good Morning,

China's banks have been reviewing the impact of declining house prices and risk of a debt overhang (negative equity), occurring in 'most cities ' (66/70) in China. Obviously, this will include syndicated loads to property developers and the probability of repayment or perhaps rolling over of loans/obligations. 

With new builds down circa 22% and new land purchases by registered developers, approaching a 40% decline year on year. The impact to the 'average' earning Chinese worker is significant, and is being felt across all of China. Whether Migrant workers, steel-makers, factory workers including those in equipment and machine manufacturers, none are exempt from the downside is slower growth. This contagion has already started to happen with a decline in factory output, and laying off of personnel. Today's flash PMI HSBC data confirms this (compiled my Markit).

Without further intervention, albeit, what else can the Chinese Government do, as they have reduced interest rates, relaxed borrowing requirements and eased property ownership rules. Save for further bailouts like those of Evergrande Real Estate Group (HKG: 3333), the developers are up the creek without a paddle. Same for Local Governments, whom were previously reliant on land sales and sales taxation revenue, all now significantly lower with the possibility of council tax/property taxation being considered to make up the short-falls in budgets. 

The Chinese Government have put a band-aid on a shark bite with the Chinese loan facilities extended to Evergrande (Circa$16B). With debts approaching $31.8B (EMC figures inc. perpetual bonds $7B approx.*) and revenues in decline, Evergrande's woes have only been delayed the inevitable, save for 'further stimulus'. 

Evergrande can make space for a Ghost Cities segment in their reporting? Or delayed developments? At what stage is the button pressed on a rights issue (to the Chinese Government or asset sales similar steel mills?) to scrub the debt off Chinese Property developers books. This will of course continue the perverse bull run on their stock prices, despite the sector running above 90+% net debt (average) across the industry and by a recent reports over the 120-130% debt to equity (EMC) estimates. 

Citron Research, had a view, "that Evergrande was insolvent and had consistently presented fraudulent information to the investing public." The Securities and Fraud Commission in Hong Kong has an on-going misconduct case against Citron. This started last Wednesday (18 March 2015), due to be finalised sometime beginning of March 2016 (yes 4 years later) on or around 6 March 2015. It would be wise to update ones diary on the tribunal. Although Citron's commentary hasn't always been blinding, but it is certainly worth considering the views of the short seller. Sometimes catching the mighty Deloitte on the back foot!

Today's mumble was delayed due to the requirements of Game Digital (GMD), with Benedict Smith (CFO) stepping down after lengthy 26 months in the position after dire  interim results.. With a decline in first half profits, (the company already sign posted in January), it’s no surprise the stocks on the tank (again), and any recovery in the SP from January was totally unjustified. The market is competitive, with delivery available next day for those wanting to trim their purchase price further. 

The entire gaming industry is suffering the woes of a lack of 'new' blockbuster games enticing the loyal followers to part with their cash. Margins squeezed on near the same revenue, although digital/online sales should provide some support. At anything above 200 pence, one finds the price very hard to justify. EMC remains negative on HOME and GMD as per the January commentary.. Although it’s wise to bank profits in the latter on the news today. From a technical perspective, can GMD hold 240 pence...

Copper had a brief recover, going to $6000/t ($2.72+/lb.) and now at $2.795/lb ($6160/t) despite the weak Chinese data, one assumes the market has spotted the Chinese trades as well and the rush to cover short positions on the dollar strength. The bets are on copper for Chinese stimulus and national grid developments...for now.

Reviewing the AGM announcements for ESG (Eserveglobal) it was a timely reminder for EMC's commentary on CFO Stephen Blundell flipping his options. The EMC was subject to criticism from certain parties. With threats of reports to the FCA for market manipulation 'based' on the EMC view of Stephen Blundell's director share sale and that of Investec's, being an indicator of what is to come. 

ESG shareholders and the board consider it prudent to appoint Stephen Blundell as the Chief Operating Officer. If the gossip is correct, Stephen Blundell has put himself forward for the permanent CEO position, where he is currently "interim" CEO as a result of Mr Paolo Montessori's resignation. The AGM statement, for those who have missed it. One would find it hard to criticise a share sale where the stock performance has been positive. 

GATE ventures watch, circa 12% down, 'ramp-fabulous!' With some significant rumour flying round about Oxus (OXS), its wise to avoid further commentary until the result of the arbitration and the Jerooy Mine update. A reminder for those getting carried away, the Prime minister Joomart Otorbayev of Kyrgyzstan warned back in January that "Each prospective investor [for Jerooy] should be warned of additional legal costs."

Atb Fraser

Morning Mumble: E-Sports Events &...Chinese Rate Cut (The 1st Part of New Stimuli) & CFU (GoodBye)

Original published draft version (content or context has not changed!) It appears I had two pages open and published the wrong one. Edited version below, mere typos etc...

Good Morning,

It was only in a call the other day I was asked about Gfinity Plc (appointed a Creative Director) and GAME Digital get in on the act with the acquisition of Multiplay (UK) Limited. A very brief comparison suggests Gfinity is over-the-price. There is likely to be only one winner in this space, but...GFIN and GMD might be in for some tough competition, with rumours about two Television Broadcasters considering a similar model to Robot Wars for gamers. The question is, will it draw the viewers?  

Staying with rumours as the weekend allows for such things, normally after a substantial share price movement on a Friday, perhaps the board of Gulf Keystone would like to update the market on the offer received? If the gossip is true, Gulf Keystone have already got an indicative bid subject to a CPR and a few other pieces of due diligence, namely production. 

Over the weekend China showed its cards in just how aggressive it is prepared to go to maintain growth above the 7% level. The contradiction is the Chinese government are now conditioning the market to 'easing.' The comrades are not prepared to let growth drop without a good fight. It’s not often the WSJ gets the tune of China on the money, China’s Rate Cut Renews Economic Concerns Beijing is relying on increasingly aggressive measures to rev up economic activity.

The Chinese are concerned, not only about the growth, but their "B&B of exports", which are in decline. China's growth may just be impacting on its competitiveness. PMI Data (Reuters), confirming all the logically economic issues in China.

Ceramic Fuel (CFU), time to turn the lights out, this stock has performed EXACTLY how it should have in light of performance. If you bought in, perhaps you sould be asking yourself why/what/where...these mistakes are often more valuable than one realises.

Due to other commitments, a short-one! Save for Allied Mines...(ALM). Staggering!

Atb Fraser

Morning mumble: Déjà Vu with Oil, Copper and Kaz! BAObab

Good Evening,

It’s been a busy period, so apologies as it was planned to cover more. The obvious happened with oil being impacted by inventory levels but with a significant amount of speculation anywhere near $60/bbl (Brent) and $48/bbl (WTI).

The market keeps waking up to the realities of another false dawn but over to the Baker Hughs rig count to install some more hope. The support levels are being defined currently, aided in part by storage not necessarily for speculation save for security of supply. The market is attempting to get ahead of itself with the speculation of drilling rig declines, what next? Well Counts via Baker Hughes? Surely not...

KAZ Minerals (KAZ) announced the audited results (for 31/12/14). Cuprum Holding have taken the crap and allegedly left the good within KAZ. As things are not going to plan, KAZ's backers have kindly been willing [waived] to forget about the covenants on gearing until Bozshakol Mine gets off the ground, so they continue in the same vein until 1st July 2016. Had KAZ added 5 days they could have timed it nicely Capital City Day in Kazakhstan. Not because of the changes in Capital City, but more so the need for capital! (Poor I know...)

KAZ's gearing has shot through the roof, more so than expected, in part due to the copper price falling more than those conservative parties thought! Shareholder funds written down, debt down a paltry amount, but gearing doubling as a % of shareholder funds and by EMC estimates surpassing the 70% as of today. It took the market quite some time to read a simplistic announcement and realise the concerns. With Kaz's currently cost per lb, they'll be hoping for better data out of China on the back of the PMI data.

Copper being the trade on PMI data, responded well to HSBC Flash China Manufacturing PMI. Copper's move mirror/validated factory production being well up and the Chinese New Year bringing fresh hopes of positives. Noteworthy the PMI data is contradicting the shipping, factory gate prices and company profits with production being up for the first time in 5 months. We should read into that that native demand is stronger than exports. 

Shorts were wise to cover on the China PMI data as the economy starts to benefit from the commodity drops. Copper is/was the weight of the PMI data, it responded well bouncing to just shy of $2.70/lbs (5% jump). The point to be wary of is housing is the driver for Chinese copper, it's stalling and this will dampen spirits in part. 

The market is now learning myopia creates volatility, as such speculators are looking further east of China to Japan and America for more solid copper indicators. China's issues are known and priced into the market. Japan and America are anticipated to spend, copper will trend (P+ve) for the long speculators, tapered in part by the Chinese known issues. Save for any issues causing risk off volatility. Additionally, the price is being supported by almost all the majors suffering from a drop in grades and alleged lower guidance (even fractional). 

With the gap narrowing in the supply and demand (for the interim), its wise to take profits. We are led to believe that the Zambian spat will be resolved shortly, so Barrick et al can ramp up production once again, putting some breaks on coppers appreciation. 

Baobab's (BAO) largest shareholder strikes and crystallises losses for every long-term holder if selling today (including here). Having seen value in the asset, the proposed delisting and cash offer is a disgrace to a decent asset. Unfortunately is what the market is as the market allegedly struggles to find financing. Booking a loss on BAO today is not with disappointment but more a caveat towards the directors (whom will for decent investors become uninvestable). 

BAO's Directors for some reason have an agenda to delist, if both proposals fail *(unlikely) it’s worth kicking the directors into touch. It’s asserted $12M will be difficult to raise within the current market, which rather sums up the capabilities of the management. If you see such parties on the header of anything trade-able, add a risk caveat. One can but hope for another bid? But don't hold out much hope...

More later, but for those following my SIPP dullness, Blue Solar Income Fund release their unaudited Condensed Consolidated Interim Financial Statements for the Six Months Ended 31 December 2014, bang on the money...

No time for WLFE, GLEN, RIO or Vale, but later?!?!

Atb Fraser