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: SHCOMP, A buffet of commodity woes (Short32) and the implications for Alumina Ltd, Rio's Coal, Hargreaves Services (HSP) and SXX the gamble.

Good Morning,

One may require a nice ice-tea or G&T in certain circumstances. 

Trading on the SHCOMP (Shanghai Stock Exchange Composite Index) was volatile, a plunge from opening of near 5% following by gains of some 10% from the low. Closing near the high for the day at 4,277.223. Margins and leverage appear to be the issue, with the drop being covered post the closing of positions. Has the Chinese Government saved the day? 

Remaining short on Amur Minerals (AMC) but also banking considerable profits, this company is over-priced for the stage it’s at, the cash it has, and the economic potential (or lack of) for the asset . Those following the wider story will note how logistics will become a nightmare and funding is of a scale, that even Sirius Minerals (SXX) with decent support and decent geopolitical headwinds, will still have to be very persuasive about.

AMC PEA (Preliminary Economic Assessment) / PFS (Pre-Feasibility Study) suggested the viability isn't for this time, especially as Nickel has limited to no support and volatile. Maybe in years to come, utilising a telescope and some hope for "guidance." The SRK guidance / consensus of future prices was based on a different climate around 8 years ago. The super-cycle may shift such a degree it becomes economic sooner than envisaged, but the odds are currently against that. 

Nickel is currently trading $5.2231-$5.2345/lb and has been as low as $5.11-14/lb overnight. Those aware of the position of Nickel will not be surprised by the moves over the past week. Concerns regarding the limited growth in the very sectors that are the highest users of Nickel. Watch the $5:08/lb.

For those, including some analysts that have a wish to improve their understanding of the sector (present company included), consider the Nickel Institute (Materials and uses), for a brief helicopter view of the commodity. Often giving a better understanding of the market than covering it with "linked to steel demand." Not the greatest month either for South 32 whose woes despite being Short32 are increasing as commodities take a further hit. 

South 32's (S32/Short32) 'portfolio' of assets produce alumina with the Chinese prices still falling and the Australian prices attempting to keep up, aluminium (sub key $0.80/lb at 0.76/lb), coal (enough said), manganese (anti-dumping investigation and sub critical $2 at $1.93/kg, nickel $5.23/lb), silver ($15.7/Oz.), lead (fairly consistent but trading at a crucial support level of 0.80/lb and zinc (consistent trend currently $0.92/lb). Life isn't too great for South32, although its one to play in any whiffs of recovery. 

The market is not ignorant to the Alumina downgrades across the sector, with producers "almost" scaling back production but never getting round to it. The poker face is in-danger of forcing the wheels off the higher leveraged players. The favoured pure play short is Alumina Ltd that mirrors the market woes. Playing the OTC (OTCMKTS: AWCMY) and ASX: AWC. In the absence of a recovery in both the ex-works price for alumina and such a swelling of inventory in the pacific, ASX: AWC will struggle with share support. 

With Mick Davis buying (possibly) Rio's coal assets (FT), the Yorkshire Post highlights the industry woes where the Hatfield Colliery is closing. This was expected, but the timing has been brought forward by a year or so. The government is unlikely to offer support despite it being tabled in the commons.

Mick's timing is likely to be very well orchestrated. Having sat on his hands and refused to pay anywhere near the expectations of the industry, could RIO's capex needs force their hands with their thermal coal operations. Alternatively, Mick could buy S32 once it's been giving a thorough kicking by the market for being "unfortunately" aligned to the downward cycle of commodities.  

Perhaps time to review Hargreaves Services (HSP), having closed again recently, with Net Assets Circa £150M and net debt around £20M. The company is now priced towards the top end of any valuation, but more than likely nearing the bottom than of this massive drop. With the sentiment in the coal sector and the decision by major investors/funds to avoid any exposure, the stocks have been punished. 

Yesterday was the last opportunity to dump the warrants in Sirius Minerals (SXX) ahead of the committee meeting today. With the stock suspended today awaiting the announcement it's D-Day. With the no person wishing to appear the guilty party, from a psychological perspective on is betting on a deferral to the Secretary of State. 

Having taken profit the outcome is immaterial, the speculators have scope for considerable gains but not without risks. 3 pence circa on refusal. 5 pence on deferral, 38 pence on approval (guesstimates). With an 85% probability of approval/deferral, it shall be interesting! 

The eyes are on Gold at the moment for a place of safety. With dwindling demand and reducing supply in the current climate, it’s that favourite sport of kick the higher cost producers. Tungsten's brief recovery has ended with a damp squid at $217/MTU.

No time to fully cover Obtala Resources' (OBT) final results, with the over-expectation becoming a disappointing reality with this stock, expect further selling after a period of hope. Returns and cashflow are key and in the absence of guidance of earnings, revenues any speculation is limited to hope. Perhaps one for those brave folk that can convince themselves the returns on assets of circa £100M are favourable. Quite how investors are meant to buy a stock with little guidance for an agricultural business also in timber? 

Atb Fraser

Morning Mumble: Chinese Property Bonds &....wonder will never cease, oil revisions downwards.

China's overseas property investment to reach $20 bln in 2015-study As Kaisa defaults, Goldman sees value in the property builders. The property slowdown is forcing the insurers and larger Chinese developers to diversify their holdings to an international hedge. Its wise to consider this the top of the property cycle as the leverage is unlikely to be paid with internal growth faltering.

Li put it simply , "there's just so much on the market a buyer is being deterred from the off ings". Li I am sure meant offerings but you get the idea. Li's been tracking the property market since the clamp down on corruption in China and the charts are staggering, dropping almost identically from 18 March 2013 to today. Surely the Chinese housing situation isn't directly linked to corruption that the dropped started 4 days after Xi Jinping became president?!

Today, Royal Dutch Shell (RDSA) announced there 4th Quarter and Full Year 2014 Unaudited Results and with it a very logical  update balancing growth and returns to address the sector issues they are experiencing was the license to print money for those short on the news. RDSA's prudence in their sales was more fortune than well-timed divestments. 

RDSA buybacks are scrapped (wisely) the investors (long only) are now the ones to take the pain, with earnings significantly under pressure and limited further divestments, I have to wonder if RDSA will be on the acquisition trail very soon, there is some very well-placed gossip of a very large acquisition. Over to UBS to get the ball rolling. Over to the Industrial Engineering components to react appropriately. 

Glencore (GLEN) appear to not know what to do with their coal operations. Glencore considers cuts at South Africa coal unit Optimum, having tried closing its Australian operations for 3 weeks, why did they bother opening it again? Now they're considering South Africa (RSA). 

GLENs asset classes should be considered tier 2. Over to GLEN to meander through with an inconsistent strategy. Had GLEN had the understanding of the market like they should do, the only benefit was to the short-term price where as soon as the news of the restart came the price gave up any support. We'll blame China for the thermal coal prices, rather than the entire change in global demand. The one saviour may be that RSA could be compelled to buy / take these struggling assets off miners hands to shore up the ailing economy, with the Rand like to depreciate further there's going to be a few bargains*.

For those whom dislike the shorters, they'd be wise to check the prices of PDL (Petra Diamonds) and Gem Diamonds (GEMD), the market has awoken to the fact the sale of Antwerp Diamond Bank to a Real Estate company (Yinren Group) didn't go as planned (a year ago). 

Of great significance, Shanghai, Hong Kong shares fall as China launches new probe into margin trading China Securities Regulatory Commission (CSRC) perhaps have found something in the alleged routine checks. 

Kaz Minerals Q4 production report from Roger Bade gets the chocolate teapot award. For myself, you'd be rude if you didn't agree there is no guidance on currency or costs. The market has to look over its shoulder at the all in net cash costs of $2.04/lb (not all in costs circa $2.75/lb EMC estimate) of the interims last August. With prices stabilising and likely to appreciate over the next 12 months, save for more economic woes and the Greek issues, plus Bozshakol Copper Project and Aktogay Copper Mine coming on stream there should be an element of knife catching now. 

Kaz's debts should not be ignored with the Chinese Development Bank (CDB) funding there's room for discussions. Kaz location to China is obviously strategic for both parties, time to start considering the positives.

Atb Fraser

Morning Mumble: Food Prices (partial), CU lower soon + Market Items

Good Morning,

Apologises for the delay, Game Digital (GMD) stating the obvious sentiment in margin and bundles in the Christmas trading update. Many thanks to the GMD IPO (although a repeat listing) aiding 2015. Along with KAZ Minerals the short benefiting today's market joys with Credit Suisse yesterday commencing the kicking. 

VED (Vedanta) ( as EMC'd yesterday) was known to be closed early, it had hit the target price for a long term short circa 7 months. It does need a revisit for intra-trading but one has to take money off the markets with strict discipline. Its a muppets disease not to bank significant profits and that includes the institutional readers whom think the trend is forever, yes you too can be a Muppet. Glencore, my short on the basis GLEN's (Glencore) copper beliefs were out of touch with the market nevermind their "tear" of assets (poor I know). 

The herd shall follow in due course, but its wise to consider their coverage if they cannot get the obvious right. With coal getting a kicking again...GLEN's earnings are looking that great with greater capital intensity. Kudos to Liberum Capital whom I suspect didn't expect 240 pence, Investec might need to review their switch from Rio to GLEN

Below are some brief out-takes for something I did in June 2013/Jan 2014 and July 2014, for which I've adapted this morning. For those that know about Pork Riblets, Semi-Meaty (I'm trying to make it sound luxurious)...December has been the hit by a quadruple whammy that has continued unabated, positive for the pocket and for retail sales and more so if the trend continues. Retail will see cheaper goods (consumer durables/white goods) and higher demand as well (see  EMC thoughts on shipping costs) with greater disposable income. Global deflation/zero inflation is a risk to western economies more so than developing countries. Save for the developing nations weakness in currency (about time I must say) eroding a good 50% of any price price reductions.

So with oil now mirroring a lot of commodities with speculation being stripped out to leave a realistic market (over supply) even in the short-term, copper as the indicator of growth has fallen back. Readers cannot say they were not given the warning  in November/December. So the indicator (Dr Copper as most refer to it) of global health is pricing in more realistic growth patterns (see Chinese trade growth) nearly bang on my estimates at CampAlpha). Even with the EU's intentions of Economic stimulus etc...America's demand may however support China (perversely). 

So with the decline in commodities positively impacting on food prices for the consumer both in agriculture (inc fertilisers and other associated harvest costs), supply chain logistics (in its entirety) and point of sale costs (including energy and staff costs re: recent hourly rate declines in the US), there's only one likely beneficiary. This theme will continue for some time, with the FAO (Food & Agriculture Organisation of the United Nations) indices mirroring (to a degree) iron ore and belatedly copper. Other sources but limited time so apologies.

See FAO Food Commodity Price Indices (left), showing significant drops in prices there's a real risk of further drops as bio-fuels are awash in the market and with limited / static demand creating a surplus in animal feed as well the alternative demand does not look positive either (grain feed/food ingredients). Plus a significant pressure on the fertilisers likely to drive costs/prices lower as producers hold out for better deals and the market being in oversupply (although recently tightening). 

With record harvests across feed grains, soya and meats (if one is allowed to call them a harvest), save for coffee(long), Cocoa (only short-term) and citrus fruits (Florida Harvest issues inferring one of the worst crop every. Prices are set in trend for the next 12 months save for any major issues. We have Soybeans dropping 3.6% After USDA Supply Report (WSJ) So for the dinner party live enthusiasts you will finally not have to pretend to substitute meat for your vegetarian guests. 

The global super-cycle is moving through commodities to food and is taking hold . With commodities the first to give, then food prices, forcing the factory gate prices in decline. (Simplified version). When considering the below, also consider the global impact both to Grocers but also to the consumer. 

Just a summarised bit on what I'm able to share in terms of food prices, please feel free to ignore or digest (I know).

Today we saw the risks presenting in copper with the tank, EMC copper's real risk could not have summed it up better, taking larger positions on the way down...in the absence of any support $2/lb. is the next station. 

Limited time for the other items. Its worth commenting on the iron ore price for those thinking the summer would last longer. All the majors were down, save for Atlas Iron the second coming, with massive volume, it would be wise to pause and plan (you vultures!). With the energy crisis of over supply (Energy rout I think CitiGroup called it) guess what's happening with Coal. With a few changes to increase the liquidity in LME coming into force on the 19th of this month, traders would be wise to read the manual:-).

Risk off? Gold on? hitting the support line of $1239/oz and retreating quickly. Cost deflation is going to impact gold, its only a matter of time!

Atb Fraser

It would have been respectful for certain individuals to acknowledge the source of their information in emails, reports and articles rather than just copying and pasting.

Morning Mumble (late): Housing & Coal

It has already been a few days of speaking with conveyancers and meetings for a house and flat sales/purchases. What is often interesting when dealing with companies is gaining a wider helicopter view understanding of the market.

The auctions have been tailing off from the summer (not uncommon) with a few (Inc. myself) being out bid on most properties from March to September. The achieved price is now significantly lower (near 11% lower than the summer), and the number of interested parties appears to be well down. Seasonally it’s not uncommon, but one factor cited is the affordability elements of the mortgage applications even for clients porting their mortgages to a new property. Positively it is limiting the competition so for the buyers out there are some decent purchases to be had.

Examples being, there is a reduction in borrowing capabilities of home owners or the more common situation occurring being limitations of additional funds to up size. Yes, this is positive in cooling the property market and reducing the risks of a boom albeit contradictory when considering the Help to Buy (H2B) that is meant to assist people on to the market. Historically, I'm from an era of 3.5 times main income plus 1 of the income.

The lawyer's example of the couple had an income for Mr & Mrs A of £45K & £11K, borrowing potential of £166K in the olden days. It would appear the Government Bank differ on this and have approved them for a paltry £104K of borrowings. Perhaps an extreme example of miscalculations/assessment with no other liabilities (no loans nor student loans etc.) one assumes they'd have been lent upwards of £130K. 

The firms I'm dealing with at the moment are finding most of their work is around £105-£250K (North) and £285-£445K south with a large reduction in properties over £500k. Implying the peek has come, with demand tailing off and supply stagnating. This is with no surprise when you consider the recent London developers announcements about cooling off and normalisation of sales.

It has however got me thinking that the housing market is likely to have some form of coming. Whilst speaking with solicitors they note that a lot of sales are being repriced lower (reductions on the offer) even for current home-owners when the affordability terms applied, This is happening even for those porting mortgages from one property to another. It could be construed as the "housing cap" rather than blowing the bubble.

Its uncanny that today's interim management statement by Persimmon Homes (PSN) with PSN stating, "As expected we have experienced a return to a more traditional seasonal pattern to customer activity this year with reservation rates picking up with the onset of the autumn season after the slower summer weeks."

One does have to acknowledge that PSN has good forward visibility on their reservation interest circa £696 million of forward sales reserved beyond 2014, an increase of 12% on the same point last year (2013: £622 million). Perhaps one would be wise to call that the steam.

Its wise to keep my opinions to myself about timber framing after seeing a property being totally rebuilt (bricks only) recently as a result of being incorrectly tied in, could this be a problem for the future. PSN's Space4 timber frame had an analogy recently by a brickie to..."Space4 another home in a few years." One would be wise to consider the significant of "a more traditional" seasonal pattern in conjunction with affordability rules.

Glencore's Interim Management Statement for the 3rd Quarter  was positive in terms of underpinning copper (own source) up 8%, Ferrochrome up 5% and own sourced coal up 7mt to 111.4Mt (7% gain). GLEN's Zinc was just ahead of my expectations with the ramp up in the Australian ops (McArthur River and Mount Isa) and Perkoa avoid some of the consequences of closing the Perseverance and Brunswick mines.

Quite how GLEN will performing with the market outlook for coal for the next 12-18 months is riskier for the long only fraternity. Expect some small acquisitions to consolidate the super-cycle, watch out quality AIM companies. (Easy to identify). As such, with the outlook for coal and the risks to copper due to the control by certain parties, GLEN's a good intra-day trade on the news. With Japan going in the opposite direction to the US, the markets will go following the good news.

Limited time for AB Foods  (but they do miss the managements own LFL sales improvements by 0.5%) and the drinks announcements yesterday, post a telecon I may return to them. Surely I do not need to comment on the sugar outlook we all know too well...just in purchasing it.

Could LGEN's Q3 IMS  bode well for the listed annuity providers with LGEN breaking the trend? Some really good news for HomeServe in the member agreement with AARP. One certainly to watch...

Atb Fraser

Morning Mumble: I CU all the way...BLT pushing with expansion, and CAML hitting the mark!

Am I missing something with AIM? Admittedly it makes no difference to me, but what are companies doing awarding themselves 4%+ of the company based on??? Tower Resources PLC Grant of Options and Exercise of Warrants Only 75M shares at the placing price from Tower Resources PLC Placing, Acquisition and Preliminary Results from the week before. Where else in the world can you get the ability to buy stock at last week’s prices? It would appear the board room of Tower Resources is one of those places! 

The company wants to be very careful, as its these sort of things shareholders are looking at. Imagine if the placees were told...we've got a brilliant company that needs cash, are you interested? Were they at any stage informed that a significant percentage of those monies would be diluted to award "options." to Directors. The event is so material of the mind-set of the company parties would be wise to flip the stock and go elsewhere.

So back to the markets: BHP Billiton's results  are obviously bullish with the 10% headline increase in production. 

So the race is on to force companies out of the market place not only with Iron Ore but Coal as well, with an additional 2Mt's hitting the market despite it being so dire. The fittest companies will survive, but certainly not those overwhelmed with debt. Copper increasing and I suspect revised guidance upwards is on its way with expansion plans. With RIO and BLT's dividend one would be wise to hold them in a long portfolio. 

BLT's news bodes well for RIO (as they weren't as bullish as BLT in their announcement yesterday). In addition to the news from Mongolia that things are progressing at Rio’s Turquoise Hill Says Parties to Seek OT Funding Extension is the Government finally giving clarity on Royalty, Taxes and the like. Turquoise can then be taken out by Rio, the 1700 workers reemployed and everyone's happy in the bliss that is Oyu Tolgoi. We knew back in March that AMEC were advertising for workers, so one assumes this process is further along than the press realise?

We all must welcome Polypipe (PLP) to the market with Admission to Trading on the London Stock Exchange. Will the founders/PE backers run to the door quickly? A quick look over the market shoulder at the Appliance Online (AO.) share price is positive for me. Will they have to change their name to "Insurance Online?" 

So with Fresnillo and Hochschild's announcing yesterday would you be holding silver stocks long? We have Fresnillo coming out with production inline however its higher cost sector friend Hochschild's results yesterday don't elude to much in the way of any positives nor is there much commentary of the Silver Price down 20% on average over the last 12 months, costs will be key and HOC are now limited in their savings. 

HOC announced in March that their costs were around $18.6 per ounce and that was during a year of "savings/costs focus", with the current silver price not leaving much headroom and after the $27+M annualised interest costs on their Senior Notes, there's little left for shareholders. If you're in profit at HOC, you'd be wise to sell up or switch to FRES with costs around the $5.6 per ounce all in, significantly better than HOC. 

Now who'd have thought Tesco would have been cooking on gas today? Would you have been short going into results final results. Tesco have some relief, but it takes no rocket science to realise the three companies have to transform their pricing perception and offerings in light of significant competition. Asda clearly are winning, albeit all appear to be losing between 4-6% of their turnover to the lower priced offerings of Aldi and Lidl. 

The final thought for the day goes to Central Asian Metals 2013 Full Year Results, with 100% of the Kounrad Copper Mine income being attributable from now going forth, the earnings are set to benefit further. With 9 pence per share final dividend, there are not many around AIM doing what they say! The costs per pound are spot on, albeit I see some increase in these going forward at around 5%, the dividend coverage is more than affordable. Currently in at a fully inclusive cost in Kazakhstan is $1.13/lb albeit last year was $0.98/lb (2012).

Atb Fraser