Morning Mumble: The First Quantum (FQM) gloat (with humour), Bookers (BOK) Gem Diamonds, CAML's positives + The Start of where's Li from Hanergy.

Good Morning,

First Quantum (FQM) are passing the cap around for Cdn$1.25 billion (Circa £660M) to expand production whilst maintaining the same debt levels. We'll ignore the fact that FQM should have fund-raised when the Canadian Dollar was stronger, on the basis the share price has modestly improved albeit for no apparent reason. 

FQM, have been clever here, as they needed cash about 5 months ago based on the EMC view. This is contrary to one "Muppet" handsomely overpaid by a commodities firm. The EMC always loves a contrarian statement of "you simply do not know what you are talking about Fraser and should stick to those AIM tiddlers!" Well it would appear said muppet has not only been wrong about iron ore, copper, the impacts of Zambian taxation and Royalties, Lonmin and now FQM. All of course will be forgiven for a case or two of plonk and in good humour! 

FQM's Q1 results stated, the "Company remains compliant with all finance covenants under the Financing Agreements and expects to remain so in the future." What they FQM did not mention was thei the need for cash to fund expansion. The EMC's view is as always simple, investors including those muppet fund-managers and analysts, should have sold (EMC: Selling FQM). 

One of the best acquisitions by a company in a long-time, Bookers to acquire Londis and Budgens. Hat-tip to a certain savvy West-Country retailer broker whom in January spotted the crossover of Mike Baker being appointed as Budgens Brand Manager/Director. Will Mike Baker be overall Brand Director in the combined entity? With a lineage starting from Sainsbury’s, and some hard work, there aren't too many potential candidates. All the market needs now is Booker to acquire Iceland and the Big Food Group will be put back as a single entity, although Malcolm Walker might have a thing or two to say about that! 

Gem Diamonds (GEM) (See also: EMC: GEM Diamonds (February 15) seller of GEMD) give a sales and operational update. The update is now looking positive for GEMD, with prices near those of Q4 with a fractional improvement. The market has seen no further declines in pricing, with GEMD's average of US$ 2,146 per carat (first three tenders of 2015) compared to US$2,140 per carat in Q4 14. Ghaghoo is progressing well with recovery grades above resources averages (for now) and optimisation of recovery has improved recovery of all grades. 

GEMD has net cash of US$ 56.9 million at the date of this report, with financing in place, expect share price to gain some support on weakness with performance like to improve as a result of Ghaghoo. Over to GEMD to give the cautionary notes: 

Diamond Market - During the Period diamond traders continued the cautious approach they have adopted since Q3 2014. Increased liquidity constraints following the closure of the Antwerp Diamond Bank, together with tighter credit terms imposed by other diamond banks continued to put pressure on the rough diamond market. The Basel Watch and Jewellery Show which took place in March did not significantly improve sentiment in the polished market as traders wait for improved demand for polished diamonds. Notwithstanding this, prices achieved for Letšeng's high value, large rough diamond production remained resilient during the Period.

Overall it was rude not to have some on weakness, although small it may be the start of a positive headwind for the sector. Especially as some analysts have realised financial liquidity is important. 

Central Asian Mining (CAML) update on the Kounrad expansion, aiming for 13K/t's of copper for this year and 15K next, the share price movement is justified, perhaps as its got a little ahead of itself. 

Just Eat's tin is out for a modest £445 million, will give an indication of the confidence in this stock; wise to watch! With some humour, we are starting the "where is Li Hejun of Hanergy?" 

Of pertinence to Kenmare (KMR) is the update from Iluka Resources via their  AGM statement, "Needless to say, for the company to proceed to a binding offer, we need to have confidence around the financial merit and the value creation opportunity for our shareholders and our ability to manage Kenmare’s operation for the benefit of all stakeholders." 

Iluka are sounding more and more like they have KMR over a barrel. Maybe a revision in the offer? PRU? perhaps some wisdom this time? In Hindsight, the first offer from Iluka Resources was a prime example of why this companies company's SP is in the doldrums. Was it not near double the current indicated offer!?1 

Atb Fraser.

Morning Mumble: Zoopla (ZPLA) just a copy and paste! Gulf Keystone, is the market being unfair! Hanergy with perhaps some HangEnergy coverage later!

Good Morning, 

Zoopla ZPLA shall be simply covered with, "The Group has experienced UK Agency membership churn in the period due to increased competition, notably from the launch of Agents' Mutual and its restrictive 'only one-other portal' rule. However, churn levels have slowed significantly over the past few months and are returning towards normal historic levels. At the same time the Group has seen strong growth in membership numbers across its other channels including the growth in its newly established dedicated commercial property offering which had 182 members at 31 March 2015."

Are the shorts going to be honoured on Hanergy?!?!?! Surely those margined/leveraged Chinese traders have not "done" one. 

The member numbers are rather compelling, with the market laughably under-estimating the "transition" with OnTheMarket.com. The ARPA (Average Revenue per Advertiser) improves seem to buck the trend, of for how long as advertisers realise there's room for "adjustment." 

In contrast ZPLA "expect agency churn to return to normal historic levels over the coming months as we remain by far the best value digital marketing proposition available to property professionals in the UK." One assumes they're being forced to be more competitive and parties would be wise to consider the "best value" statement. Over to Rightmove (RMV), whom may have fared a little better, with a share buyback, means RMV is partially indemnified (at the moment.) RMV are purchasing circa 5% of the volume per day via the buyback authority for up to 15% of equity, some 11% further authority left (approx.)!

Apart from the obvious elements and basic trading on ASX for iron ore where the price dropped, so "the obvious candidates" made trading easy, save for Mount Gibson that seems to be in a world of its own! WSJ article pretty much covers it. 

Maybe more later, including Gulf Keystone (GKP), where the market reaction are perhaps being a little harsh! Time for some homework there, although before people get upset, its obviously got risks. Plus some Sound Oil, where the market appears have capped the price out pending more news! 

Atb Fraser

Morning Mumble: Hanergy and the SRX anomaly

Good Morning, 

There was a good intention of covering the Hanergy debacle that's unwinding in Hong Kong, that was picked up with Mick Johnson and Gavin Jackson at the FT, Hanergy: The 10-minute trade. Those with youth on their side will remember, EMC Hanergy back in late January. 

Whether the tank is imminent or not, the positions "will" have to unwind. One suspects that there should be a very good look at the share register and also those with derivative positions. Certainly one to watch! If the valuations were LFL, then what would make Apple's recent solar acquisition, VERY cheap, or perhaps Hanergy is totally overvalued, built on a stack of cards?

It’s amusing to read Sierra Rutile (SRX) year end (2014), where its wise to consider what "focus" means in terms of "actual." SRX highlight there is "sustained focus on cost control resulted in a decrease in unit and operating cash costs". So SRX have increased sales volume, up 17% at 129,602 tonnes compared to 111,018 tonnes (2013). Revenue was down on a fall in Rutile prices near 20% but quotes by SRX at 21.6% to US$117.8 million, compared with $123.4m (2013). 

SRX inform holders that direct costs are down on various measures, "Significant reduction in unit operating costs despite the effect of inflation in certain products and services due to Ebola and lower than planned production:

• 7% reduction in direct operating cash costs¹ to US$546/tonne (2013: US$588/tonne).
• 5.4% reduction in operating cash costs³ to US$646/tonne (2013: US$683/tonne).
• 10.5% reduction in all-in cash costs⁴ to US$683/tonne (2013: US$763/tonne)."

BUT, "On an absolute basis, cost of sales were higher at US$111.3 million for the year from US$93.1 million in 2013 due to the greater volume of rutile sold, impacted by:

• increased change in inventories of finished goods of US$ 14.2 million (2013: income of US$5.3  million) due to greater volume of rutile sold; and
• an increase in depreciation charge to US$21.0 million (2013: US$17.6 million) mainly due to additional depreciation on Lanti Dry Mine assets."

[Obviously], the Group remains committed to controlling costs and continue to focus on many cost efficiency programs.

Over to SRX to cover the entire issue, "Despite a difficult market environment, sales volumes remained strong during 2014, with Sierra Rutile selling a record 129,602 tonnes of rutile and reducing inventory held to more normal levels. Demand for natural rutile was strong but also highly price-sensitive as the overall TiO2 feedstock was in surplus from an abundance of lower-grade feedstocks. This resulted in a cap on the premium customers were willing to pay for natural rutile over lower-grade products and dragged the market downwards overall, with average realised prices 21.6% lower for 2014 than 2013. Consequently, despite strong sales volumes, turnover fell 5% for the year.

SRX share price had a brief recovery this time last year on the back of their news, but as covered previously, there was little in the way of a headwind to improve the outlook for SRX or Kenmare (KMR). The news does improve the prospects for the ‘on-going’ discussions between KMR and Iluka Resources.

With SRX cash declining, net debt up, one wonders if they would be wise to place a few shares before 10 pence? Net debt is now $36,436m, from $26.476m, with deferments obtained from the Government of Sierra Leon (GOSL), one hopes NED bank and GOSL won't have their patience tested. Watch for any news on Rutile, Kemnare, Iluka or a general improvement in rutile pricing. The latter improvement in pricing with the market having excessive supplies is unlikely. Jam anyone? 

On the gossip front, its alleged that Central Rand (CRND) have had a cash offer from one of their suitors for their dutch subsidiary (Obviously no more than $150M). Copper's appreciation has not gone unnoticed, nor the narrowing of the WTI / BRENT pricing and wonders would never cease, China's Oil Storage, ru here near two weeks ago (EMC Chinese Oil Storage), with the FT running yesterday with China low on crude oil storage capacity

Atb Fraser

Morning Mumble: Wafers...treading on thin ice &

Good Morning,

Hanergy Thin Film Power Group will be in the press a lot over coming months be it a squeeze or drop. The FT runs with Breakneck growth of Hanergy raises question. It’s a different twist on the repeat in the solar cycle for China. There's been significant consolidation, but do the earnings and receivables having a similar whiff about them. It’s a tightly held stock with the founder holding circa 70% of the stock, 5% out on loan, there could be a difficulty covering any short positions in a further squeeze.  

The article does not go into the trading elements on the market, Hanergy's (HNGSF) price has appreciated by a significant short squeeze. A stock which most traders have been waiting on the side lines to about turn and ride down circa 80%. 

For those not short-selling of any form HNGSF is one for the packs, its already at a pivotal point and the shorters have (please note past tense) clambered over themselves to obtain stock. This stock is worth no more than 1.30HKD on a good day and the FT will no doubt be reporting in due course about its share price movements in more detail. 

The accounts are not the only issue with HNGSF. Would HNGSF like to clarify what development grants are within the accounts including any Government payments? HNGSF's position may also be fuelled by the closure of positions that had been previously rolled over in the Chinese brokers now under review and suspended from taking new clients? Of course the China Securities Regulatory Commission (CSRC) inspections will find no issues at all...but with Shanghai and Shenzhen holding around $175B of leverages shorts it does not bode well if the industry got a regulatory slap. 

HNGSF as a listed solar companies is unusual, due to its HKEx  listing. You do not have to be too shrewd to find a way on to the train. Normally OTC stock via NYSE, or alternative derivatives but its globally available via even the most basic retail spread-betting portals. 

One illiquid delayed trade that has been been good for long until the trend now being at significant risk is the CSOP CES China A80 ETF (SEHK). Fairly simple product and one that mirrors Chinese Pref A Equities. With Chinese industrial profits falling, the market is falling back/stagnating until further stimulus is announced. 

In the land of the AIM, it’s amusing to see the markets pricing in so backward with Mosman Oil and Gas (MSMN). For those readers now aware of MSMN, (EMC: Up the creek), if you know a long holder, it might be wise to lock their drinks cabinet and submit them for drug testing. Is there any reason why this stock is above 2 pence? If you are wishing to email about MSMN please don't the sympathy departed in December 2014. 

We have another, Bagir Group (BAGR) (EMC Bagir Group May 2014 Sarcasm) today with their trading update , which comes with no surprises. Ever since the IPO the warnings have come out, the revisions downwards and the company I suspect will at best break-even. Listing at 56 pence, there's not much further for them to go. (Disc: no position now). There should be some serious questions asked about the timing of the BAGR listing and when they knew about the material downturn in trading so shortly after listing, from memory 1 month after listing a warning was out.

The disparity between Brent and WTI is not without sense, with various opinions going round about $50/bbl being the new ceiling or floor. If $50/bbl is the new floor, how is WTI trading at $45.47/bbl and Brent $49.06/bbl. 

Iron ore really starting to put the boot in on the listened smaller entities, those with higher leverage FMG (Fortescue Metals Group) and Atlas Iron (AGO: ASX). Whilst it was with some hilarity someone attempted to point out why AGO's a buy based on dividend yield. If there is one? Christmas was your exit, you've missed the boat!

JMAT (Johnson Matthey) today give the Q3 trading statement. The refinery additives and diagnostic division is going to come under further pressure being reliant on the petrochemical industry. The industry is currently sick as a dock and expenditure being scaled back, why would JMAT be exempt?

The outlook for the car and haulage industry varies but the majors guiding to a decline in production of circa 1% and as a result a drop in earnings, stagnation is likely for JMAT at best until the cycle changes. The technology premium for JMAT should be under review. Emission Control Technologies the kingpin of the company is reliant on on industries peaking or little growth. There seems to be an echo of EMC just getting it write (scuse the pun) EMC JMAT above its money and under pressure. One could argue there’s no viable benefit in holding JMAT until oil is 40% up…JMAT still missing their AAL (Anglo American) fees! 

Little time for the other items...

Atb Fraser

Thank you for the well-wishers for my daughter, she's not playing again today and didn't sleep well. Being off on business soon I hope she recovers from the lurgies.