PM Bolt-On: EMED the issue of 2 Billion shares (See what I've done there), should shareholders vote for it? Hmm..

Good Evening,

A last minute update from EMED today appears to mean most holders will be diluted on a fair value case. Had the open offer had an element of 'equality' about it, then all stakeholders would have/should have been pleased. 

Assuming the maths is correct, 2,060,520,685 shares in EMED are hitting the register (please note the term) on the 24 June 2015 (subject to approval) in to the long only camp. EMED infer they can achieve the expansion from 5mtpa to 7.5mpta in Phase 1 ramp up, 2.5mtpa above the previous projections. 

With a soon to be 72.5% of the capital to be in the hands of four shareholders, one would be wise to ascribe a certain element risk to this. Its acknowledged the articles protect shareholders to a degree*, had they all been offered "openly" for the capital raising it would not have been an issue. The terms could have been better, but unsurprisingly it was rather obvious, EMC: EMED strong arm. 

Perhaps the punters should formalise a shareholders group, there's near 14% of them on the register (currently but not for long)! Yes you stale holders, get savvy and start protecting your investment. 

Avoiding going into the analysis over the mine plan, costs should reduce per lb to near 1.87-1.94/lbs (EMC's estimates) all in (not C1 costs but around 11%+leeway). The numbers appear to stack up well for ramp up in production and the long-term prognosis for 'Rio Tinto.' 

With such a capital raising, removal of convertible loan issues and offtake agreements for an expected 100% production, the project is de-risked for any (possible) finance needing to be inked. 

Offtake agreements are now revised upwards from the previous 51% ish, with Orion receiving 31.54%, Trafigura Pte Limited 19.34%, XGC 49.12% Liberty Mines and Metals holding zero%, but potentially seeing value by their investment. 

All the above assuming one has an understanding of the copper outlook, belief in the EMED suggested copper outlook consensus from the March presentation and Chinese market demand. Simply put, if one envisions a perfect market, there's no reason why EMED cannot be a longer-term hold, with hopes of ten pence+ some. 

Alternatively, current shareholders can propose an different options for the financing. Brave call, but all the same perhaps do’able if one was well organised. Assuming one’s average is below 7 pence, you could be handsomely rewarded, "if" the potential majority holders play nicely, with a register looking like.........HKX 767,655,838 (21.9%), Liberty Metals & Mining 489,473,684 (14.0%), Orion 509,598,282 (14.6%) and Urion 770,530,339 (22.0%) is it possible? 

Trafigura's dispute by its subsidiary Impala Warehousing and Logistics with Wanxiang Resources is unlikely to impact on EMED even as a forced seller. Over to Decheng Mining, apologies for the humour here!

Atb Fraser

Disclaimer

Notes: Urion, Urion Holdings (Malta) Limited, a wholly owned indirect subsidiary of Trafigura, XGC, Yanggu Xiangguang Copper Co. Ltd, Orion, Orion Mine Finance (Master) Fund and LIberty, Liberty Metals & Mining Holdings, LLC.

*On 7 May 2015, the Company entered into the Concert Party Determination Letter with Liberty Metals & Mining, Orion, Trafigura and XGC, whereby the Board made a determination for the purposes of a restriction contained in the Company's Articles which prevents any shareholder (whether by himself, or with persons determined by the Board to be acting in concert with him) from acquiring shares which (when taken together with shares held or acquired by persons determined by the Board to be acting in concert with him) carry 20 per cent. or more of the voting rights attributable to the shares of the Company.  In reliance on certain confirmations given by Liberty Metals & Mining, Orion, Trafigura and XGC to the Company in the Concert Party Determination Letter, the Board determined that none of Liberty Metals & Mining, Orion, Trafigura and XGC shall be deemed to be "acting in concert" with one another (or any of their respective affiliates) by virtue of carrying out or undertaking any potential activities in connection with the Proposals.  In addition, the Board has also determined that the subscription of the Subscription Shares and the Capitalisation Issue Shares by the Investors constitutes a permitted acquisition for the purposes of the Company's Articles.

Morning Mumble: (Holiday Mode) EMED Plc & CAML, and a QPP Cheeky One!

Good Morning, 

Its pleasing to see a decent amount of news-flow on a Monday.

EMED have an extension to the loan facility. This extension reads as though a strong armed is being applied to force (or appear to) force EMED into accept 'some' terms that are on the table currently from the 'three' (Trafigura, Orion Mine Finance and Hong Kong Xiangguang International). One assumes they'll be able to organise a meeting by 30 April 2015 to avoid incurring extension fees. 

Some egg on the faces of those with very large positions in QPP (Quindell) today, with the gossip proving right. QPP, for those with any interest now, was something to avoid as the risks being significantly unknown. It was surprising to speak to such a well-versed trader today whose position was impacted by the news in Australia of Slater & Gordon overnight. One for the learning curve?! Today it would have been rude not to have a cheeky short "on the news." 

Central Asia Metals (CAML) full-year results beat even the most bullish expectations, dividend up, revenues up and profit beating the whisper by near 30%. Return on shareholder funds even allowing for FX impairments and rebalancing of Kenges Rakishev 16.02% holding, are positive. 

Improving EPS, bottom line and the Tenge devaluation aiding costs CAML's cause. 60% of the cost base is Kazakhstan Tenge. Expects further bottom line improvements as the full affects of the Tenge devaluation kick in, assuming production levels are maintained. 

With the copper market adopting a more realistic outlook, even with the current prices, its hard not to justify 'turning positive on CAML (again). See  EMC: CAML from January. The EMC is slowly getting over its issue with the director sales by Mr Nick Clarke, Chief Executive Officer, although one will always have an issue with a director without skin in the game? We'll save that for another day, expect a special dividend in due course. 

Arian Silver (AGQ) achieves first concentrate production at San José, with the more recent net smelter royalty purchase AGQ's woes may just about to turn. Today's "not" very interesting news is Bluefield Solar (BSIF) most recent acquisition, those SIPP investors will find it hard not to have some form of lower risk stability, with a yield of just under 6% isn't too be sniffed at (EMC 2014 (BSIF).  AND, GKP (Gulf Keystone) get an extension on their homework!

Anglo American's (AAL's)  inability to sell its assets and now looking to give them away doesn't bode well for Jubilee Platinum's (JLP) Tjate project in the mid-to-long-term. Blackrock realising AAL's woes a little too late, or perhaps "just in time" and selling down.

The news award goes to Randgold Resources (RRS), whom see growth opportunities.

Atb Fraser

Morning Mumble: a euro thrown across the bow of Bourgeoisiem, Petra Diamond's (PDL), GEMD + Grocers

Good Morning, 

There shall be a few sore heads in Greece today and Troika's headache is just starting. Fear not, you will not find the in-depth implications or thesis on Greece leaving the Euro here.  The risks are somewhat being ignored, the outcome for the rest of Europe may be more significant than the press and Government's acknowledge. Simply put, if one feels like a kicked dog in the corner, even the most placid of people get up, fight or leave.

You'd expect nothing less to read the risk aware view here. The EU would be wise to gauge whether Greece is part of a trend that is spreading in popularity across Europe. With the increase in extreme views in the UK and across Europe there is something that the EU isn't addressing that is causing discontent. Greece, as the potential bellwether of voters across Europe warning. After all, there's a little bit of extremism in all and it requires groups to create trends for people to jump on the bandwagon and turn the switch on for the moderates. Examples being UKIP, where the other UK parties are adopting moderate attempts at similar policies.

Greece may have been the master of its own destiny and financial distress, now it would appear they are again, BBCAnti-austerity Syriza wins Greek election. The global assessors will ignore why Syriza has won this election (via coalition) and focus on the financial implications for the EU. 

The Greek elections are being misunderstood by the markets. Greece is blamed for the slide in the Euro, oil and commodity prices and not the US inventory levels being the highest in 85 years nor Saudi's views or business as usual. Greece should be viewed as a potential indicator of political fashions and trends. This is likely to have greater implications than any financial damage and benefits the European Disunion. 

The jury for gold appreciation is out for the time being on the Greek elections with the implications in oil already being misunderstood. The flight to safety as Syriza get their feet under the table by renegotiation and face-saving of greater importance than financial prudence. Surely years of pain for a stronger economy over the longer-term is better; we have prime examples of excessive spending under Labour Governments in the UK. A quick perusal of historic UK government borrowing will clarify the position.

It would be wise to revisit EMED's projections before spending all those gains on the final permitting being obtained. With copper catching a cold in Asia with little support for base metals (absence of long speculation) trading at circa $2.46/lbs, EMED's return for investors now needs to be considered appropriately. The long-term view being if they can survive this market and minimise costs now they're likely to go from strength to strength. Cashflow will be welcome but how much of it remains the question. 

As Roger Bade points out this morning the price assumptions in the Technical Report from 2013 (here) might need a few revisions. To quote EMED (Page 9 Tech Report), "A copper spot price assumption of $3.50/lb used in the projects economics analysis compares to relative current market copper prices of $3.70lbs ($8,200/t) and a trailing 5 year average above $3.00/lb.” 

When reading through the technical report to net present value (NPV) if one was to apply a 12.5% discount, the project would be currently losing money at sub $2.50/lbs. Estimates (my own), suggest it would be better to increase to 9m/t p.a. and raise a full $254M, to fund through to larger expansion and reduced costs that "could" be completed by end of year two. The funding would give viability to the long investors and transparency. The relevance of copper has an impact on the secured loan facility that was able to paid in copper subject to the price being above $6,613.86/t, although there's still time for the market to recover it would be wise to acknowledge these risks. Over to the market to be despondent on this…5m/t's is simply not viable in the current market and outlook.

Anglo American (AAL) shareholders have finally seen sense, in fact the whole sector has...can we see some realistic pricing to entice longer-term shareholders into the stock. Over to Credit Suisse with their preferred AAL and RIO (Rio Tinto) for a little review? We hope AAL can find some muppet for their Dawson and Foxleigh mines l. With Q4 results due 28th Jan, we can look forward to something spectacular. 

Petra Diamonds (PDL) have announced what the market knew in terms of prices softening but maintaining a common-sense. It's hoped the dividend will provide some hope for the stock, but this will be unlikely today. No matter what you call it, it’s a revision downwards, over to Awal Bank SA to give it another kicking...with 13.2 million shares needing a home. As a result of PDL, I decided to sell Gem Diamonds (GEMD). 

For those supermarket/grocer investors and the people wishing to expose shorting funds, it would be wise to read the Delhaize Group 2014 revenues and preliminary results. Turnaround stories in grocers are possible as shown by Delhaize Group (Euronext Brussels: DELB) & listed NYSE if you want to play Euro/USD arb. DELB was a prime shorting candidate a 3+ years ago, it's now recovered, with results coming in strong today the longs in the recovery are benefiting. With Europe likely to be the indicator of how grocers recover it would be wise to follow a few including Carrefour. Roble S.A. yet again having a nice coup back in May 2012 (See: EMC Short Sellers) 

Carrefour could just be coming in to play, Les Echoes (The Moulin family owners of Galeries Lafayette increasestake in Carrefour to 9.5%) and the English version, via Reuters. Whether the Moulin family increase their stake further is another question. They say no others have a differing view. 

With most aware of the Igas Energy debacle, Statement re Finance Facility, there's a gossip of some large bets going in! Better late than never...

Atb Fraser

Morning Mumble (with apologies): Kirkland Gold (KGI) &...what comes to mind post trading.

Kirkland Lake Gold Concludes Strategic Review Process

So Kirkland Lake Gold (KGI)) have concluded the "Strategic Review" and the conclusion is: While the Company received several expressions of interest, a transaction did not materialize. Well I am no mining analyst merely a trading perspective but lets face it, if you “cannot find a buyer for exceptional value at low cost” there are only so many reasons why:

• The market is suffering a depression and not valuing opportunities.

• There is better out there in terms of assets.

• It was not marketed in a way that parties did not see the benefits.

• The acquirers (potential) wasted the time of the management.

• The asset is not worth anywhere near what shareholders would expect.

• Its going nowhere…

• Another reason?

Admittedly, I haven’t looked at this company for some time so I'm making a number of assumptions about costs. Yes things are improving but I cannot help but wonder if "small scale mining is outdated". 

What has been shown is they are able to reduce their costs, but that's based on a headwind of consistent grades and achieving their forecasts. Something that potentially interested parties do not have a belief they will be achieved or a sale/merger would be ensuing now. 

The stock has travelled up significantly, but for me it's time to face facts after today. KGI is significantly ahead on any potential it has, and most certainly ahead of any likely dividend payouts. So when will the market re-rate? I believe today's RNS on the strategic review will be the start of it, but it will need momentum before this is confirmed. 

EMED, Leggie et al, will be waiting for the market to recognise the value of the final permit . One can hope there leggie, however if you look at the volumes, it looks to me as though parties are selling down those cheap shares “whilst there is support.” The timing of such an announcement didn't assist things either...people looked, thought "this is good news" and then went to the pub!

What surprises me is the obvious shorts appear missed by most. What was difficult to work out with Intu Properties Plc Publication of Prospectus for Rights Issue. Firstly there was Barclays, where to quote one chap, "I'm bloody daft and I'll lose the shirt off my back" when discussing Barclays as a short. 

Now we have INTU Properties with 2 for 7 shares at 180 pence coming to market. It's not rocket science in terms of parties flipping is it? No wonder its underwritten at that price...Well it would appear so, especially as the Rights Issue is so heavily discounted. yes the companies progressing but forget all the fundamentals and just look at the SP, when it was announced it hit £3 ish, so its on-going and guess what it hits today? 282 ish. So is it "based purely on probability going up or down? Common-sense prevails. 

Similarly Royal Sun Alliance have done what? Just a thought, sometimes trading negatively is no more than common sense. Just as I’m typing this, a decent shorter comes out the woodwork GuevouraFund Limited Short-Selling Disclosure has a small position, I assume it’s a hedge but either way will make significantly post Rights Issue. Would you be long? I certainly wouldn't at the moment without a 3 for 8 or similar hedge. i.e. the best of both worlds :-).  

The final thought of the FT Article Glencore closer to iron ore ambition By Katrina Manson in Nouakchott and Javier Blas in Geneva. Common sense prevails here, there’s a startling over-supply growing and as such this does not bode well for this African Project. 

GLEN may well know Africa well, however just look at the issues Rio Tinto and Vale have had in Guinea albeit the transport won’t be as “bad a problem” as Rio and Vale suffered. With the quality of the ore, GLEN are surely looking long beyond the surplus issues? The Glut to market could have significance to all producers as every MT’s surplus must be near 50 cents of Iron Ore? Just a fag packet calculation. Glencore went hard into Coal, Crash, now the same for Iron Ore? Hmmm

All the best, Fraser

As a postscript, I wonder what the issue is with Rurelec's listing? I do wonder if it's easier to sell a bargain basement story at 4p to a market than all in around 10+pence. It will be 2 months post the award whereby Rurelec are left with £10M give or take. Bolivia are likely to be Electioneering soon which won't bode well for prompt payment. 

It's always nice to see a company in the throws of being clubbed by the bank, something that GKP needs within 4 weeks was my estimates (cash). I'm trying to remember my commentary on the report into reserves, but it was something along the lines of "why wouldn't you get a well-known firm to do it." Well it would appear they listened and so did the market.