Morning Mumble: Dee Effe Esse, China's Steel Mills (No news), PMO Zebedee BOING! & APR Energy (the Fluke)

Good Morning,

Following on from the EMC February comments on DFS Furniture (DFS), today we are informed (with no surprise) the management and owners of DFS are running for the door selling around 25% of the company. Advent will still hold between 50-55.9% of the company, so those realists will be wise to remember the rules of illiquid stocks at least until the stabilisation facility has been finished!

With Li Keqiang (and as such the Chinese Government) acknowledging the downward pressure on the Chinese economy intensifying. China have finally utilised the over-capacity and pollution to justify the closure of the mills. It’s positive for the Chinese as they're openly stating iron ore demand is reducing and there is currently over-capacity in steel mills even with the closures. With the extended trading hours on the DCE (Dalian Commodity Exchange), the price reacted very positively (for the shorts), dropping 3%. 

We should initiate the Atlas Iron share price watch again, with those holders knowing full well the bounce at Christmas was the time to get out! Only 10% ish off its lows, the holders can fill mailboxes with the abuse despite knowing the realities. Of course it has nothing to do with cost of production and the supplied market. We'll ignore the facts of Russia exports being enticing for India on the back of their currency debacle. As Russia languishes in a mire of contemplation and ignorance, what better time for military exercises (FT). Often children find comfort in playing with their toys after being on the naughty step....

With both WTI and Brent sat on levels of support, one assumes the bulls will return with the ECB printing presses, at least on Brent, whilst WTI focuses on shipping America to Asia to meet demand. Later today I hope to catch up with a shipping chap about the current health of rates and demand. Will update in due course, the delay surely cannot be on the basis it’s his turn to pay (not that one is counting having paid for the last 4!)

Premier Oil (PMO) are getting busy with the drill bit, so the fanfare will no doubt be out for Rockhopper (RKH) over the next few weeks. Wasn't Zebedee a child's spring type character well before my time? RKH Zebedee announcement.

APR Energy, by sheer fluke being short on technicals alone, APR Energy aided EMC et al with a market update. Time to press that button on APR, with a trading update/market update not the best timing with discussions with their banking syndicate in full flow. Its pleasing to see a number of positions utilise yesterday's spike to sell near break-even, how prudent to sell positions. 

One would be wise to consider how much cash APR banking syndicates will expect shareholders to stump up. That alleged offer late last year isn’t looking so speculative and cheeky now is it! The EMC Christmas Card list is bordering on the who do we not send them to. 

Limited time to cover GLIF’ s investment, in Open Energy Group, and the dull performance of Inspired Capital (INSC) not to be confused for those fat fingers with Inspirit Energy (INSP). Both a longer-term hold since circa 2013/2014.

Atb Fraser

No comments required on Afren (AFR) due to the obvious there. The quote of the day goes to one fund manager with, "whoops." 

Morning Mumble: All that Glitters Au Ag, Amara's placing, Weatherly, GLIF & JD Wetherspoon.

Good Morning, 

A pleasure when the smaller boys make a decent packet out of the market in comparison to the houses of grandeur such as the high fees for M&A or the odd take private element. 

Having traded long on gold on the back of CHF and China, yes China gave gold a leg up plus Asian trading and NY. China's data created yet more demand on gold risk, so this morning its time to take the majority of profits (perhaps earlier buy but yet again solid profits). It’s not so long ago a few savvy investors picked up some significant low cost gold bets (EMC). It would appear the corporate gold traders were caught napping by the move and very few have profited from the appreciation of gold. Kudos to the few, with a not so paltry pay cheque either.

With gold and silver in fashion at the moment, it is wise to buy exposure into those leveraged plays such as the once upon a time short, HOC (Hochschild) who has appreciated near 30% since the change in sentiment and trend for Ag circa $18.30/oz. HOC's now making a profit again! With HOC's Q4 production update being a lot better than most (includingmyself thought). 

The HOC holders can breathe a sigh of relief with HOC completing a decent hedging programme to lock in some transparency over cashflow even if prices appreciate. With HOC signing agreements to hedge the sale of 6,000,000 ounces of silver at $17.75 per ounce for 2015. This is in addition to the previous agreement to hedge 38,000 ounces of gold for 2015 at $1,300 per ounce.

We'll side step Petropavlovsk (POG) purely on the basis of unnecessary appreciation over Christmas and without justification. 

Copper appears to be looking for a floor / support in the price at the moment, although the deals being done and stocks increasing at LME certainly leave a lot for the interpretation. The guessing for copper will continue as two dominant warrant holders sit on their hands (maybe slightly singed). 

With metal warranted against the January 2015 date becoming prompt this week supplies are likely to up-tick contradicting the narrow bands of supply and demand. One certainly to keep your eye on if trading, especially if the physical market becomes tighter (allegedly) again. (Circa 19th April 2015). One suspects that Standard Bank's Aug/Sept notes on copper might need a slight revision. 

The question over the short-term is will the Chinese smelter excess still be managed appropriately (drip feeding back in to the market) with some losses stacking up or is there likely to be a very short-term swell in physical to meet obligations? The market I suspect will wait till factory restarts before taking an opinion. With factory gate prices lower there's pressure on the market to maintain a competitive (read as cheaper) attractiveness.

We see the results of Amara Mining's (AMA) placing which shaves certain assumptions off the target or take out price, down around 10% of previous estimates (Approximate 25.2 - 28 pence now.) The positives are any suitor is wise to acknowledge AMA is now far from vulnerable to speculative approaches being funded to an investment project decision and is supported. If the book-build was so well supported why is there a discount to market of 15% or thereabouts? 

In-between AMA's announcement of its intentionto conduct a placing (worth a read) and today the costs of the BFS and completion apparently appreciated 10% or should it be the needs appreciated 10%. It’s acknowledged that with a prevailing wind for gold it was wise to press the button on cash. The disappointment being, if Peel Hunt and GMP Securities Europe had to offer a discount on the price, it does not bode well for other entities looking for cash. So in the absence of Randgold (EMC May 2014) news or Samsung, Q4 2015 looks to be the date in mind, one hopes financing can be encouraged in the current gold climate sooner rather than later. 

Stating the obvious award goes to J D Wetherspoon(JDW) with increased competition from the supermarkets. JDW more recent declines I thought were obvious, with landlords’ holidays often taken post-Christmas? With calls for equality in treatment stating the obvious bad news in the sector etc...if JDW don't like the sector why are they operating in it? Expanding yet claiming discriminatory pressures is never a good thing with increased LFL sales and margins, albeit under pressure from their wage increases are healthy. JDW's update will be taken as well as Majestic Wine's (MJW)! The hangover should have been taken post-Christmas. 

Its the day for the GLIF  (GLI Finance ) dividend announcement (see: EMC GLIF April 2014) and only two days ago Inspired Capital (INSC) (the old Renovo aka Ultimate Finance Group) trading update.

Bowleven (BLVN) informed the market of the two well exploration drilling programme on the Bomono Permit, with fingers cross for the company (no position), they'll need it! WTI (Weatherly International) quarterly operations and production update does not bode well! From EMC, will it stop the rot!, we had our answer sooner than expected! 

Little time to discuss the BLT (BHP Billiton) Operational Review Half Year Ended 31 Dec 2014 shale being an obvious candidate for some tighter cost controls and copper even performing well (grades?), Anglo Pacific's update on the Kestrel royalty, seeming like desperation to maintain the SP. Afren's update hasn't gone down well re: amortisation payment.

Atb Fraser

Morning Mumble: Stimulus (you'll need it to read it) & Commodities and the China/UK Financing Switch.

China appears to be vehement about its expansion plans at the risk of other sectors. So, it was around this time last year China introduced a Mini-Stimulus, unsurprisingly it was..."Housing for the Poor & Railways" (why don't they just be damned and open work houses & Almshouses). Now that appears to have done absolutely zip, so guess what they're doing this year? Nope, throw common-sense to the wind, they're not going to let the economy cement its foundations instead roll the risks up and continue to focus on Housing for the Poor & Railways, only 6,500 Kilometres of track...up near 1K on last year. 

One's assuming they can lay track on track? As they surely must be running out of the plausible Railway Expansion zones. Demand will, I'm categorical about this, not meet demand if this type of stimulus continues without consolidation across all sectors. One simply cannot expand and not ignore the fractured foundations of the two tier financing, with defaults here there and everywhere. 

So a thought for the China bulls. A shocking level of companies in China have sold assets to China to fund not expansion but debt repayment. What will they sell next to fund such a necessity of repaying their obligations? One assumes they can't sell the obligation? This has been common-across all the stressed Sectors save for the Solar Industry and belatedly construction. It, put simply, is a train wreck waiting to happen (sorry couldn't resist), one that will be ignored by the "old stimulus" packages they merely reword to keep the "Analysts happy." 

Do not think for a minute its a prediction of the end of the world, more a stark reality that "common-sense" is approaching. All the papers are reporting on the "stimulus" to meet Growth Targets. If one has a lobotomy you could be excused, but there's no news here folks it's a rehash of wording for what was planned in 2013, it was happening 'whatever'. You'll get the idea, as China attracts finance with the promise of riches via the Railways, one would do well to minimise their risks there...It reminds me of the American Railways, but I'll save that for another day and no doubt when I feel Wild Wild West...

In the market, I've missed something, it was disappointing, I had actually considered it thoroughly but forgot to continue the thought process through to the overall impact of the supply China and Australia. I'm more annoyed with myself for keeping my note book in such bad order. The "gap" in the Supply and Demand of commodities is the High Grade Ores, which have had a better than expected performance. This is the norm, but more importantly, is a necessity for the Mills and Producers in China whom have to reduce their pollution. So you have China pushing High Quality through the rood, and 'standard and inferior' only being propped up...this is mirrored the same for Nickel, whom since the obvious happened, has had a nice 19-21% run.

The question is, when will China adopt a realistic attitude to its economy about financing, expansion and maintaining the basic principles of Supply & Demand? From the Amateur, me (smiles), I've been watching the consolidation in China take charge and the bits that are being ignored. So everything that's in the crap now, that has defaulted and/or is, will post 2016 gain again. Solar, Coal and the stronger real estate companies (less leverage) will do well, including Carbon Emission Trading (the lovely intangible). Those expanding, based on the same principles, will (de)falter in due course as their coke fuelled frenzy of bonds dries up. This won't (oops best hedge my bets), isn't likely to be all at once, but will slowly unwind as China "over the next 5-6 years up to 2020 forces the economy to become financially independent. "

China will be akin to your 13/14 year old daughter/son spending all their allowance and then having an advance on next years as well. They're in essence betting on your income being maintained. So the 'buzz' will be no doubt called Environment Enhancement or Environmental Protection (or any such spin) post this five year plan, the Thirteenth Guideline (2016–2020) (Five year plan) will likely be consolidation. One simply cannot continue even without common-sense at the same rate. 

Albeit, as a trader I should be thankful for China additional QE stimulus on the markets. So in essence we've had a bucketload of them. PPI Claims, (I still want to know why they randomly text people are they that stupid), We've had Governmental QE, not only with rescue 'strategic elements of industry' (banks etc...) but we've also had them being able to sell a few assets at bargain basement prices, (many thanks once again).

For the UK, the consolidation in the sector is likely to have a higher impact on the banks than one realises. Bank lending, whether the Government says otherwise is most likely to deteriorate as companies such as Renovo (used to be a Pharma but acquire Ultimate Finance Group their Preliminary Results) and GLIF Plc (Link to Results) come in to their own (Psst I'm long on Both, the former more recently Inspired Capital INSC). For myself, with my cash element I have elected to start funding as well, as the returns are around 7%...much better than the last minute crap you get with ISA's.

This 'secondary' lending, albeit with conditions and pricing, is likely to force the banks to become conventional and dull. Its one reason I don't see Barclays and Barclays Investment Bank staying together. Parties will and have argued that separated they'd be weaker or one poorer, however a divestment were BARC holders get one share in each is likely to be the way forward. Barclays Retail can then ignore any issues with the IB section and just shrug in a very sort of French manner about any other misselling scandals that come to the fore.

Back to the market now, with Dunelm Mill coming in nicely with Interim Management Statement which should provide some support to the stellar performance in its shareprice over 6 years. For Rachel, selling her house and investing (shoving was her word) into Dunelm mill when she went to work in Hong Kong has proved a very savvy move (Congrats).

It looks like Kingfisher is betting on the French/European recovery now with Kingfisher entering into exclusive negotiations to acquire Mr Bricolage. One will be hoping their foray into Europe will be better than Marks & Spencer. Having not really looked at the ownership structure for some time, it would appear it's a very good expansion, with sites in France, Belgium, Argentina, Bulgaria, Madagascar, Spain, and Uruguay it 'could' be a very shrewd deal. 

So on the back of BLT (BHP Billiton's) announcement of their 4 or 5 pillars (depending how many fingers you have) Anglo American (AAL) are now inclined to wave bye bye to their Angloplats operation. Not that this has not been suggested every year since 2008, it's now very plausible. The same as BLT will no doubt do, give the shareholders 1 share in Anglo Platinum for every share they have in AAL. So for the next 12 months, IPO's will be lower, instead crap will be spun out for more people to own the crap. Would you be a holder of a stock that is being held to ransom by the workers? 

Sadly out of time to cover AMI (African Minerals Full Year Results) announcement, polyhalite (SXX implications of Verde Potash), Copper (Central Asia Metals plc Q1 2014 Production Update inline and positive), Uranium support and improvement (improving outlook), Fluorspar (take outs) and Iron Ore (default on deliveries). If life was easy, I would just paid for a narrative...sadly I cannot pay myself to write!