Morning Mumble: The Data Dump - China's retail sales Grew...with Golden Week included. + Steel and Defaults - But hey we're not worried!

Good Morning, Good Afternoon,

Unlike the echolalia in the press, we have decided to work backwards from the almighty data dump and finish with a compelling statement of the realities of the situation. 

The market is now pricing in a stimulus - whether this is delivered or massaged into figures is another matter. We shall avoid all references to a “wappy wending” heard recently on a conference call! Li’s mishap was more entertainment than anything else, but gives the realities of the steel situation in China.

We have the mystical deflation that is occurring in food prices, retail and manufacturing both in goods inwards and outwards - Not the model one likes when leveraged and expecting non-stop stellar returns!

On Saturday (the trade data) in conjunction with today’s economic data merely represents the facts. We’ve had disappointment in imports (18.8%), exports (down 6.9%) and retail flat (11% up compared to this time last year).

What with the trade data and dump, we’re back to media copy and paste measures eluded to here and in the odd morning note and call. The PBoC are listening to the cries of those that scream blue murder at “only 6.9%” (yeah right) GDP growth (EMC has always been 4-4.5%).

The PBoC is now left compelled to slash interest rate, massage the Reserve Ratio Requirements (RRR) and stem the capital outflows. Actually, the latter could perversely damage China with a requirement to “bring home the bacon” in terms of revenue. There is now a need to also diversify away from a reliance on an overcooked and slowing economy. Sell China/US? Hmmm compelling argument.

All the above is compounded by an inflation rate, that for saying there’s been X stimulus etc…etc… (We’ll avoid the bore), the inflation rate is falling. Aided to some degree by the price of pork falling…as covered here! Also in part due to producer prices slid 5.9%, declining for the 44th consecutive month. Never mind the inventory issues and wage costs that may have further implications on non-performing loans (remember those last time around?).

With the industrial figure being below consensus, September’s reported 5.7% and near 5.6% the market has looked for reassurance in retail performance - Retail can only be described as flat. The sales however mask an element we’ll be covering here called Chinese Margins, because one suspects they’ve taken a beating as well. Footfall’s and voids at malls, giving a different view on the figures as well. A quick survey of rents paid shows some eyebrow raising questions…why if retail is improving are the very retailers struggling?

The industrial production figure at 5.6 was below September's 5.70 per cent level and below the pencil brigades’ consensus - The data validates China’s need to move towards consumption. The speed of the transition is likely to be the stumbling block for expectations, with some pain and unknown implications for growth.

One needs to see further evidence in the PMI Services for China to start to turn modestly positive of a floor being found in the economy. This may be aided by a massive glut/trend of Private Finance Initiatives/Public Private Partnerships to assist the transfer of wealth from state to comrade. (We’ve covered this previously).

We are also reminded of the Chinese Iron and Steel Association report whereby their members have reported collective losses of near $4.5B. What with the “assistance” they’ve received both in the pricing of energy, rebates and what we shall loosely call Central/Local Government grants - quite staggering if there was a level playing field.

We note that ArcelorMittal pulled the trigger on a rights issue in South Africa, that’s not only bad for Kumba Iron Ore with their revised pricing agreement but gives an indication of sector realities. The Kumba Iron Ore and Atlas Iron fan club have beaten back into action with some meaningful suggestions on occupations for yours truly!

Expect more headlines similar to this on Thursday when China Shanshui Cement Group defaults on its debt. The prudence, as reported by Bloomberg is: China Fund That Gained 24% on Bonds Sees Substantial Correction. Additionally, following on from the EMC piece of steel, where apparently Chinese Steel Mills were reacting to market forces, then we need to consider Baoshan Steel's Loss Highlights Crisis Engulfing China Mills.

As promised, at the beginning (if you’re still reading) – from the Baoshan Article on Bloomberg:

HFT One-Year Open Bond Fund was ranked No. 2 among the 270 bond funds, according to Haitong Securities.

“We aren’t worried about large-scale defaults because the central bank’s monetary policy will stay loose within the coming two years,” Shao said, adding he plans to expand his fixed income team from 16 to as many as 25 within the coming three years.

We’ll just ask readers to consider that again in Italics…and leave it out there:

“We aren’t worried about large-scale defaults because the central bank’s monetary policy will stay loose within the coming two years,” Shao said, adding he plans to expand his fixed income team from 16 to as many as 25 within the coming three years.

Atb Fraser

N.B. We note the Prosecutor on the Tailings Dam is citing Negligence on the radio and in the media…whether BHP can walk away from this is another story. Vale simply cannot afford to as the cashflow or “hope of cashflow is needed.” Samarco debt trading at a near binary bet of existence.

Morning Mumble: The Federal Reserve - Shooting Fish + Steel - the bottom is near! Bitcoins to Randgold with Glencore's mass garden leave project.

Good Morning,

For those having been up most of the night playing the "shooting fish in a barrel game" thanks to the Fed (without complacency). It was an opportunity to take the market reaction to Yellen's inferences on a "potential" December rate rise and short base metals. 

Iron Ore was more resilient, finding some form of support circa $47.5-48/t - we note the hefty discounts now being offered for sub 62% FE grades. One has a suspicion there's an "at any price seller in the market", perhaps requiring cashflow.

The U.S. Department of Commerce "cottoning on" (the phrase will be more poignant later in the year) to the subsidies Chinese are companies are getting. Not only were Angang Group Hong Kong Co. and Baoshan Iron & Steel Co. identified but, perhaps somewhat tongue in cheek a Baosteel Group Corp. spokesman said "the company’s operations are based on market forces." We'll cover it with, "of course they are governor!"

The Chinese labour intensity in metals processing has significant implications for central and regional governments. Especially some regions that have an over reliance upon the mills, processors and smelters (or associated services) + coal fired power stations to maintain some the status quo of employment. As such, there's been a repricing or energy discounts (development grants) and where possible a reduction in local business taxes to maintain the levels of employment

Only yesterday there was a discussion and opportunity to be educated on the benefits of bit coin, after some significant price movements. Before we get a telling off, we haven't become "all things knowing about the BitCoin" but today, it was rude not to attempt to short it only to realise the market was well ahead! 

It appears someone has recognised a slight liquidity/ramp potential. The FT explains it so much better than here, Bitcoin surges as Chinese flock to Russian fraudster’s site. (Izzy, Dan and Robin on the title). It won't do the bull case much good when the manipulation appears to be almost pyramid like...only time will tell. 

We had Randgold (RRS) reporting today with differing views on this this morning. Previously EMC has had a target of 4250, albeit the volte face being because of Ghana, where RRS still believe in exploring a JV. Why oh Why!? Returns were on the low side, with net cash, some production issues and the like...the market sold off on the news not helped by the dollar strength and fall of gold. 

Glencore could be the largest single funded garden leave project in Zambia.See: Glencore Can't Fire Workers at Zambian Unit, President Says. The company should be acknowledged for their hard work, but the space they operate should wisely taper back expectations, one near £2.80. 

Atb Fraser

Morning Mumble: Glencore (of course), Countrywide (CWD) and Vedanta + various items needing further analysis.

Good Morning,

With so much going on, there’s no apologies. Admittedly the messages enquiring after my well-being were somewhat amusing. We’ve had oil supply contracting thus the price appreciating - as a result of Brazilian strikes and Libyan woes. As mentioned a few months ago, oil is about the money. With fears of floods in Texas and the like expect, the futures to rally – Hooray for another swallow.

There’s been various discussions regarding commodities trading, some better written than others, Banks face fresh pressure on physical commodities (FT). Positively for Glencore they've been dealing with it sooner rather than later, the implications for their available finance will no doubt pan out in due course. 

Leading in to what was announced yesterday in the US, Streaming Transaction - Antamina with Silver Wheaton. Quite simply, compared to Teck Corporation (TSE/TSX: TCK.B) it’s a scorching deal. No doubt structured tax efficiently as well. Will need to revisit this to do a comparative, but on the face of it the 20% of spot price for a reduction of the upfront monies is a winner for Glencore. The also hint/imply there’s another one in due course. 

With limited time, the Q3 and corporate update by Glencore is pretty much as expected, Debt is starting to be within sensible levels. Perhaps the webcast all those months back should be revisited for a body language lesson, not only in presenting but the reaction to “risks” that were rightly questioned. 

With what Silver Wheaton and Franco Nevada (both listed) are paying, why companies are not rocking up to their door I’ll never know (scuse the pun). What if Silver Wheaton’s tax position is challenged? Not only do we need to consider the implications on the commodity prices they operate in and the flexibility of accepting terms, but what are their investors’ expectations. They are now under the gaze of the EMC followers. 

We had countrywide confirm everything the market knew about Foxtons today, with a profits warning disguised as a trading update. Simply the recovery wasn’t there as they expected and with guidance lower. With this in mind, there’s no reason to buy the stock above 360 pence or hold it! Unless you’re in denial…surely not as a reader of here!!

Vedanta interim results were dire in comparison to Vedanta Limited’s update on the 27 October. Time permitting, we’ll perhaps return this evening for GLEN and VED. Glencore may be out of the woods, but Vedanta need an injection of Cairn Energy cash. Their model without the conclusion of the Cairn India deal has vapours of a debt for equity deal, which perhaps won’t be so kind to equity holders. 

The market really does need to consider the issues being seen across Aluminium, Steel and Iron Ore. Mentioned here awhile back, the subsidies relating to energy pricing and employment are tipping the scales to one of outright 150% anti-dumping taxation to avoid world domination and carnage of localised industries. We recently read that Cliff Natural Resources was looking for their toys outside the proverbial pram with regard to the actions of the Chinese. 

The final thought goes to a strong dollar, copper, and the iron ore price that has a smell of napalm about it, $46.5-$47/t. With China’s GDP guidance now being acknowledged as a realistic 4%, (A win for EMC), we’ll consider the implications over coffee. 

Atb Fraser

Morning Morning: Petra Diamonds (PDL), the Fed Simply, Gauntlets to the commodity sector & implications for Glencore Ref: Jiangxi Copper (HK: 0358)

Good Morning,

As a recap to yesterday, Petra Diamonds (PDL) updated on Q1. The diamond sector in the short and mid-term isn't necessarily the place to be increasing ones leverage - Net debt at Period end of $306.2 million (30 June 2015: $171.7 million). 

Considering the updates from De Beers (via AAL) and Alrosa, Petra's were as expected. The lack of a tender in the quarter hasn't assisted Petra - whom acknowledge prices have got weaker (down 8.8%). 

As a poignant reminder, the significance of the Antwerp Diamond Bank should be noted (See EMC: January 2015 Antwerp Diamond Bank. Not only was this underestimated by the market, but evidence is suggesting financing has tightened further. 

Petra should accept the headwinds affecting their buyers' financing and the ramp up of production in the diamond space. Prudently the majors have reduced their expectations on the sightholders. As a result, Petra with their ramp up, are likely to be a price-taker to meet their cashflow demands.

With inventories up, prices down and the delay in tender, Petra need some luck to achieve targets. It’s important to acknowledge why Petra didn't have a tender in Q1? The EMC view is that due to the car wreck of sales by the majors in Q1, Petra delayed their tender. A reminder being that Petra have a standard sales cycle. Whereby they hold one tender in Q1 and two tenders Q2. Will there be three in Q2? For those searching out last year’s Q1 for comparatives, here (Q1), where they confirm the sales cycle as well.

In the absence of an improvement in the financing or balancing of supply and demand, prices are unlikely to recover. Expect some cost cutting initiatives to those miners that ignored the realities of the Antwerp Diamond Bank (ADB) closing. Is there any reason to hold a diamond producer? Certainly not without some glimmers of hope or telescopic belief in a pricing recovery or M&A.

The Federal Reserve threw the gauntlet to commodities sector (in particular) and the markets yesterday. There will now be some revisions across the sector as the outlook becomes more challenging. Somewhat after the horse has bolted but all the same, if the global economy doesn't wobble in and employment numbers stay circa 160K+ the FED is raising rates. 

Fortescue Metals Group (FMG) are buying back debt cheap at between 14-19% discounts. China's Jiangxi Copper (HK: 0358) (China’s main producer/smelter) reported a  -59.79% drop in third quarter net profit. 

Jiangxi's numbers were in-line with the expectations here, but "the read across to Glencore" should be acknowledged. Having recently signed an agreement with state owned China Minmetals Corporation (Las Bambas for those that need reminding), it's an acknowledgement of how tough the market place is. 

As a result of the FED indications, the iron ore producers are going to benefit at an OPEX level. "The four" (Rio, BHP, FMG & Roy Hill) will be expecting an Aussie interest rate reduction  to improve their bottom line. Although it won't offset all the fall in iron prices, especially with current Chinese steel dump and associated prices.

Its only when reading KAZ Minerals Q3 & IMS that one gets a realisation of how bad things are going to get when they results are "in-line." KAZ have been lucky thanks to the devaluation of the Kazakhstani Tenge. The management have been prudent to avoiding giving guidance on cash costs in the IMS Q3 - Thankfully for them they have cash, debt is up. One can obviously look forward to updates on Koksay scoping, along with the production for Bozshakol and Aktogay in H1 2016. 

Finally, we have OPAY come out with some historic personal data breaches - being out at a loss on this, it was not unwelcome. 

Atb Fraser

Pm Bolt-On: A belated Wolseley (WOS) with a soapbox item & Glencore's open secret - lines of credit or nooses of liquidity + Have Roy Hill & Tonkolili gone short iron ore!? Come on KAZ get with it...

Good Morning,

It was hoped that this week would allow a bit more time. 

With all the indicators suggesting some form of doom, why is Gold not up? Liquidity is contracting, outlooks are being adjusted, China's liquidity issues for SOE's are coming out, including their need to export deflation and recession to other countries. 

Wolseley's (WOS) final results weren't all that, with a feeling here that WOS were calling the top of the market. The plumb centre owner reiterated exactly what the market knew. The savages took their profits and retreated to the caves. WOS, a viable company, but the outlook isn't that great. 

Over to WOS with additions from the EMC in bold to highlight the short:

Ian Meakins, Chief Executive, commented:

"The highlight of these results was another great performance by Ferguson in the US where we achieved strong like-for-like revenue growth ahead of the market and a 50 basis point improvement in the trading margin to 8.2%, which is a record.  We continue to face some challenging markets in the rest of the Group and remain focused on improving growth rates and protecting gross margins whilst keeping the cost base tight. 

"Wolseley continues to be highly cash generative and we have adequate resources to fund our capital investment programme, bolt-on acquisitions and growth in ordinary dividends. We are also announcing a £300 million share buyback which reflects the Group's strong financial position and management's confidence in the business."

Commenting on the outlook, Ian Meakins said:

"We expect to generate like-for-like revenue growth of about 4 per cent in the first half.  In the US we expect continued good growth in Blended Branches, Waterworks, HVAC, B2C and Fire and Fabrication underpinned by decent Commercial and Residential markets. However, Industrial markets in North America, which account for about 15 per cent of revenue in the region, were challenging in the fourth quarter and we expect this to continue.  We expect a continued steady recovery in Nordic markets, although the heating market in the UK is expected to remain very competitive with little growth.  Overall, we expect to make continued progress in 2016."

The buyback may offer some support, but is this the best Wolseley can do with £300M? With net debt at circa £805M, prudence would dictate either an acquisition or reducing debt. Then again...with a fall in full-year profits one has to prop up ones share price. 

The concern here is that companies should be focused on the strength of the business not the ability to leverage to show strength. China have met with similar issues in recent times and company buybacks are simply a waste (view here). We're fully aware of the pros and cons, but in the absence of a viable strategy of investment, take it as a signal that irrespective of outlooks, the management are waving a flag of..."this is the best we can do." 

The writedowns are showing the fragility of the market place across all sectors. WOS's guidance on the Nordic business with writedowns and the outlook for the US business should not be ignored. The outlook contradicts the logical buyback principles. The expansion and acquisition of decent companies would surely be a sensible alternative to enhancing longer-term value. 

It’s acknowledged Wolseley acquired, but buybacks do not improve a business performance, only the earnings relating to each share. This is not always the best measurement, as the EMC has evidenced many times before…

With the FED considering interest rate rises and the alleged strength in the US, the guidance given contradicts some bulls. Reiterated by WOS statement of price deflation in the USA, UK and Central Europe and modest price inflation in Canada and the Nordic.

Glencore have come out with a statement in response to speculation (PDF/in full below). 

Baar, Switzerland 29 September, 2015 

Response to speculation 

Glencore has taken proactive steps to position our company to withstand current commodity market conditions. 

Our business remains operationally and financially robust – we have positive cash flow, good liquidity and absolutely no solvency issues. 

We are getting on and delivering a suite of measures to reduce our debt levels by up to US$10.2 billion. 

Glencore has no debt covenants and continues to retain strong lines of credit and secure access to funding thanks to long term relationships we have with the banks. 

We remain focused on running efficient, low cost and safe operations and are confident the medium and long-term fundamentals of the commodities we produce and market remain strong into the future. (Ends)

So in essence, Glencore have so far had a placing they allegedly did not need to conduct but did to assure investors. Now they're robust and operationally/financially sound. Whatever have Capt. Kirk and Scotty got planned next. 

Well, we're sure that's all fine and dandy. The gossip/rumours suggest all is not as rosy at the mill. Cargill's winding down of their $7bn hedge fund arm (FT) won't have assisted Glencore in the sale of the grains business.

With the current outlook and Russian taxation woes that are likely to have hurt GLEN, the suggested price tag of $12B for the grains business may be a struggle. Then again they got significantly more for the Las Bambas mine in Peru - over to the sales folk. 

There's gossip suggesting that Glencore are having issues with suppliers. This is unsubstantiated at the moment, but with credit lines and liquidity tightening globally, it’s with no surprise that rumours are surfacing of a big utility company cutting its credit line to GLEN. If this is true, what are the implications for operations? It will undoubtedly have operational and financial implications. 

One is wise to measure Glencore on its assets, the price of its commodities and marketing, in conjunction with its debt. Simply, the assets, save for coal are tier 2 (EMC view) without significant investment (see African Copper Update) to improve operational performance, and until the development of these assets the outlook will remain challenging. 

With some large IB's and analysts believing that Glencore is a viable business, this won't on its own make for a lower risk investment case and suggests an element of knife catching. Certain Brokerages have advocated that there are participants willing to lend to Glencore in comparison to than Anglo American (AAL). This in its own right isn't necessarily the best comparison, albeit, it does indicate what some brokers/analysts are using as a comparator. The absence of comparatives to tier one commodities companies rather says a lot.

Would it pay to buy Glencore? Quite frankly the unknown operational model poses some risks, but it’s always nice to have some higher risk exposure. It’s noted that personally the risks of being long are greater than having been negative on Glencore since IPO. This doesn't mean there cannot be a share price recovery, with the machine doing the rounds, expect some support. Investors would be wise to keep an eye on commodity prices.

To end on a cheery note, another leveraged play on commodities Freeport-McMoRan (NYSE: FCX). FCX had some good news with the drill head. Their 100% owned Horn Mountain Deep well in the Gulf of Mexico came in on the money The release in any other market would have been positive, more so, if it didn't mean the commitment of $$ to enable production the share price would have perhaps risen. Over to Icahn to break this one up…

Thought for the week - Rio/BHP plus Fortescue Metals Group (FMG), when's the impact of Roy Hill going to bring down the axe on iron ore? Inventories normalising again in China, and so a reducing demand globally. Its noted, Shandong Iron and Steel Group's are now back in production at Tonkolili. Those whom love romance in the market place will remember Tonkolili used to be owned by African Minerals (AMI).

One hopes that the acquisition of the Tonkolili Mine by Shandong was above board. It never rains but it poors (poor I know) for the former-AMI.  AWOKO article - one hopes the 'new' AMI has resolved such minor issues as moisture content, shipping and diesel disappearing. What are the chances of a three-pronged stimulus by China just as ore hits the market? 

Have KAZ Minerals got their cap out yet?!?! Put us out of our misery on the 50 pence rights issue please?!?!

Atb Fraser

Over to the grammar police/time limited and long-days. 

Morning Mumble: Italics, Copper, along comes a Chinese Stimulus (iron ore?) and Anglo (In brief).

Good Morning,

It’s been about the busiest time on the markets for as long as one cares to remember, more so the demands of one’s time. 

Not only has Glencore's African copper review (ACR) made specific trades a kin to shooting fish in a barrel, but thanks in part by Freeport-McMoRan’s (NYSE: FCX) copper reduction in copper sales of 150 million pounds per year (for 2),  (Circa 68,038T's per annum). There's an avoidance to say much more on copper, at the moment.

One trader that was sweating when Glencore (GLEN) went significantly below 145, can now have a nap whilst the shorts are forced to close by Glencore's lack of confirmation (Shrewd). Are they? Do they need to? How will it be done? Glencore still eyeing options to raise $2.5bn in new equity (FT). We'll await Glencore's updates. Perhaps after they're done unwinding a few items aided conveniently by the ACR, it will give them some clarity on the balance sheet.

China have come out and acknowledged how bad it is (or how good it is about to get), with an intention to stimulate their way out of this rout, glut or downturn (Reuters). You can read this many ways, depending on how one is allowed to write the news. 

Of course, China's stimulus will be supported by the controls that are being introduced by the China Securities Regulatory Commission (CSR) including the soon-to-be married SHCOMP circuit breaker (CNBC). No mention of the reforms regarding to automatic trading? Or selling for that matter! There's more to this, but we're waiting on clarity on a couple of things before commentating further. With some of the tones suggesting there will be limited selling, ever...some long onlys will like this style!

The stimulus woke the iron ore price and likewise the producers appreciated the gesture, RIO/BLT/FMG and even some Jo'burg (JSE) marginal that have formed an EMC fan club. It’s a bounce and a half, perhaps with over-confidence on certain companies that are far from out of the woods. The low cost producers are viable, it's the "leveraged" higher cost crap that is rising that should raise an eyebrow or two. Perhaps, in answer to certain company directors’ prayers, they are now able to consider raising a few quid?  

As a positive, Fortescue Metals Group’s (ASX: FMG’s) white knights may now just be tempted to pay somewhere near Twiggy’s asking price. Shorts would be wise to note this potential event, with the Australian FIRB (Foreign Investment Review Board) unlikely to find any issues with an infrastructure deal. FMG have little choice but to do conduct a deal soon or risk the surplus over the longer-term weakening their hand.

Andrew ‘Twiggy’ Forrest may dislike the current offer on the table, but any deal circa $2.5B+ back on the balance sheet will give the stock more confidence. BaoSteel (EMC: June BaoSteel) are the likely front runners although, China's Hebei Iron & Steel Group and Tewoo Group (separately), will not discount any such deal.  

Keeping with the tone, Anglo American (AAL) has risen today, on the back of "selling" Rustenburg. Whether it'll be cash, shares or a mix, is immaterial to the market celebrating that AAL have removed a boil on the balance sheet. The carrying value from memory was well over £300M (please check), so there's circa £240M of Tipp-ex required on AAL’s part.

What the market should perhaps pay attention to is Sibanye. This company has in essence been "given" a liability, if one is to believe the value of the deal. Sibanye are obviously confident that they can return the operations to profitability, by the very structure of the deal. However, they won't have lost anywhere near as much as AAL! 

Have AAL sold/flogged or gifted an "asset" away when the PGM sector is starting to look like it may actually bear some modest fruit (FT: Platinum output to be hit by investment cut). 

If Sibanye can return the mine to profitability, it will be a testament to the managements understanding of mining and operations. Sibanye have a very good understanding of legacy assets, with keen eyes. It will obviously raise very sensible questions about whom should be running AAL, in the event of a turnaround. More so, what of the Scoliosis and White-Finger class action suits? Has this liability been passed on with the asset? Or are AAL fully on the hook for $1 billion.  

All for now, noted on Monitise. As a side thought, what's the unit cost for Vedanta (VED) on its iron ore operations?

Atb Fraser

Morning Mumble: Hiatuses, Commodities waffling including China DCE/Mills Iron Ore Fillip, the Nickel stand-off, Oh Rio + Genel.

Good Morning,

It’s that time of year where things wind down for the summer break. With visits and holidays planned and a few things going on behind the scenes, it'll be more of a rest from trading/investing and the market. Allowing for pool and travel time, there should be some time for the odd comment after tomorrow. 

It’s been thought provoking how the contracts have been trading on iron ore on the DCE (Dalian Commodities Exchange), with the liquidity only "appearing" more recently (16th July), almost identically to the contraction in crude prices. 

Is the previous absence and contraction in leverage now being restored? Are the Government "interventions" starting to iron out these issues (poor I know)? At the moment it looks more of a bounce than anything else, with the speculation of the port inventories and the steel mill holidays for the 70th anniversary celebration. 

We had Goldman attempting to work out the amount spent by the Chinese on the stock market rescue (FT). Alas the figure is always dependent on ones positions and perhaps there's some work that is earning them significant fees at the moment. Some figures were already in state media prior to the article, from when the "intervention" commenced. 

When one factors in all the considerations it dwarfs the $188B by Goldman. As on suspects certain factors have not been included such as the financial provisions to SEO's that were reliant on monies from impending IPO's, brokerages (and companies) requiring margin/funding assistance directly and that excludes the near $200B that the Government has spent via the CSR for lending on margin (near Goldman's numbers), brokerage assistance and more importantly "direct market equity assistance." Oh, don't forget the bond issuances and "pension company" purchases. Maybe there will be a holding’s RNS?

It’s in China's interests to play down the amount of money spent, as the significance of such a figure will show the gravity of the problem. They need to show the availability of funds to reassure the punters and wider public (confidence). All sorts of knock on consequences, for which economists will have such grand names for. 

One suspects iron ore is a bounce with the steel mills running at reduce capacity, even allowing for the fillip in steel and iron ore prices. In discussions with Li, he has evidenced steel mills avoiding restocking on any notable scale, showing perhaps a generally limited outlook of capacity/orders. 

Steel mills have a number of woes, evidenced in part by the steel-home china iron ore inventory numbers (lower than 2013), showing a) lack confidence in the steel price recovery and demand b) significant cashflow issues (even in state owned mills, more consideration required on that) c) better stock management d) awaiting a stimulus in infrastructure. It’s hoped there can be China special with various people in due course, more so evidencing the flow of money. (Promises Promises/Pie Crust?). 

The same for Nickel inventories (port), which dipped as low as 6MT in stock piles in January. There's restocking occurring without any movement in price. Inventories have grown to 10.75MT's and increasing (Chinese and LME & importantly Asia ex-LME). In contrast to the assumed deficit is nowhere in sight and prices are under pressure. 

There appears to be a momentary stand-off for a minimum price occurring on Chinese (and globally) prices at the moment circa $5/lb ($10,800/t). One suspects the LME on warrant supplies will have to drop significantly before any major appreciation in the price. In contrast the price has dropped near 28%, whilst a restocking of some 4-5MT's has occurred. There's also the consideration of supply coming online from Indonesia (end 2015). Please note this is excluding other inventories outside LME/Chinese Ports.

Earlier in the year it was sensible to consider the Nickel shortfall against assumed production and demand, on the back of Indonesian ban. The revisions are now taking place with an increase in LME/Warehousing inventories increasing near 50% fold. It would appear the bets are now on the second half for shortfalls and increased consumption. Really? Save for some Goliath type stimulus, post a significant bond raise by the Chinese (estimates ranging between $188B and $544B), maybe? 

Note the Shanghai Futures Exchange (SHFE) nickel contracts since launch appear to have spanked the price, especially Norilsk nickel for futures on SHFE. As a thought, with greater transparency that started with Iron Ore, the prices of commodities have suffered. Was the dinosaur opaque model detrimental to Chinas needs and global purchasing? Was there too much power in the hands of the marketeers? The results are certainly suggesting so.

On the market, Rio Tinto have announced they have delivered first half underlying earnings of $2.9 billion. Beating the whisper, but being priced in yesterday as consensus was anticipating something special. In reality, there's merely a delay in recognition of commodities prices having tanked across their operating divisions. 

There's positives in terms of dividend increases (beating consensus), share buybacks on-going and an emphasis on cost reduction. One does wonder how much more Rio can reduce costs without impacting on the bottom line. Rio have a very efficient model, without a doubt, most strive towards it. Debt's up a smidge to 13.683B from 12.495B (10% ish), although nothing near the likes of small producers that debt to equity would make northern rock shiver (FQM). 

Over to Rio to put it in context

As expected at the start of the year, the macro environment and commodity outlook facing the mining industry has been challenging. Commodity prices are under pressure, in some cases falling to levels not seen since 2009 in the aftermath of the Global Financial Crisis. Moderating Chinese demand, continued supply growth and downward shifts in industry cost curves are all contributing to weaker markets. Global macroeconomic risks have also added to short-term volatility, and China's equity market correction and Greece's debt negotiations have resulted in concerns of financial markets impacting commodity trading.

As with all cycles, we expect the current cyclical weakness will pass as global economic growth picks up and commodity markets rebalance. However, the recovery will be characterised by slower commodity demand growth compared to the past decade and a likely continued focus on productivity and costs over capital project development. This is the industry's "New Normal", in which producers at the lower end of the cost curve will maintain their competitive advantage, but higher cost producers will be exposed.

The importance being that Rio are expecting slower commodity demand growth compared to the last decade. Perhaps they can inform the Chinese premier? 

Genel (GENL) give a reminder to the market of how harsh the cashflow conditions are at the moment. The half yearly evidences the obvious, cash down, negative cashflow, net debt up. All this whilst appraising, developing and producing assets in the hope one day KRG coughs up some cash. There's hope though, over to Genel,

"Genel's operating performance in the first half of 2015 was strong, with net working interest production up 41% to 88,800 bopd. In recent days the KRG has made a public commitment to pay international oil companies on a sustainable basis from September 2015. These regular and predictable payments will allow Genel to fully capitalise on our strategic opportunities.

We remain committed to the Kurdistan Region of Iraq and will continue to invest in our existing oil fields while moving our major gas fields forward to development, creating significant value for both Genel and the KRG."

The final thought goes to something that was expected earlier, bad debts in China, with non-performing loans rising to 1.8 trillion yuan ($289.92 billion) as of the end of June, up 35.7 percent from a year prior, (Reuters). What is the impact for the grey lending and underground margin contingent that will also be suffering, perhaps it’s safe to assume disproportionally. RRR (reserve requirement ratio) may need a modest adjustment. 

Atb Fraser

Morning Mumble: Kumba Iron Ore: What's $200M between friends (AMSA), India's restrictive practices? VED, Rhino Resources, Chapter 11 (NYSE: ANR) & The Market Vectors Coal ETF (NYSE:KOL) Whoops! + Fresnillo! & SXX Good News!

Good Morning,

We knew Kumba Iron Ore (JSE: KIO) had difficulties. It appears ArcelorMittal South Africa (AMSA) have won the spat with Kumba over the 20% Sishen, see: EMC: Kumba + Sishen. Just not how it was expected, but they've won conversely/perversely. They did something very shrewd, they are now simply not paying a premium for Kumba's ore any more. What’s $200M of revenue between friends?

The market should be appalled with itself for reacting so slowly to the pricing assumptions of AMSA. Kumba has relied upon a sales agreement with AMSA for near 12 years, whereby 6.5MT was contracted via a supply agreement. Last year’s contract was worth just over $500M to Kumba. Unfortunately, the supply agreement does not appear to be mutually beneficial anymore, and perhaps never will be again. AMSA can simply import iron ore at near 60% less than the price ($80/t EMC assumptions) that they had been paying to Kumba. 

This contractual issue/supply agreement has a number of impacts. Not only does the profit on the supply contact equate to almost all the entire planned CAPEX for Kumba, but more so, this revenue supports the operations at Kumba's Northern Cape operations. With the contract value, assuming Kumba roll-over, being worth near $300M compared to the previous $500+M. essentially at a loss when factoring in an all in cost basis for Kumba.

One suspects the contract negotiations were at an advanced stage when a leak appeared in how AMSA was strong arming Kumba (tut tut that’s just naughty!). As mentioned previously, it's a price setters market (remember this). The Chinese wielded that axe near two years ago.

Kumba have some very difficult choices to make including cuts and/or pricing in respect of AMSA. It’s likely to be far worse for Kumba than it is for AMSA and Anglo America (AAL) (majority shareholder in Kumba). AAL may have the opportunity to fill the void, so perhaps are offering AMSA some attractive terms. AMSA’s location near Saldanha Bay could not be better for them. One analysts suggest AMSA may be tempted by Minas Rio supply.

Additionally, AMSA’s strong arm approach is likely to be punishing, as they are under significant pressure by a global oversupply of steel. If there are no Government protectionary measures put in place soon, not only in South African but India, steel producers will (not could) be forced out of business by cheap Chinese imports. Expect news on import quotas or import levies in due course. Evidenced by the aluminium prices producers in India are already suffering from because of a slump in prices and surge in cheap imports. (BALCO/Vedanta)

With a market capitalisation of $2.6B  ($1:ZAR12.64). Would you be long? There's more woes to come as Kumba’s LOM's are reducing as a result of a change in operational focus. CAPEX under significant pressure, even if they “maintain the AMSA business for another year.” Unless the global price recovers, Kumba, may not be a casualty but certainly a shadow of its former self. The impact for Exxaro may just be more significant…chequebooks please.

With interest, is the Chairman's Statement from the AGM at Vedanta (VED), where there's an emphasis on "Make in India” leading to a bounce today. There's significant pressure on India relating to their import duties that could be described as restrictive. 

India is changing, examples being the relaxation of cabotage rules (Carriage of cargo between two points within a country by a vessel or vehicle registered in another country), but is likely to put pressure on the national operators and producers in the longer-term.

The Indian Government is being pressed externally to review all levies including, agricultural and consumer goods. Complaints are already lodged with the WTO, examples being the application of the Avian Influenza restrictions. (WTO: Indian Avian Influenza). Worthy of a read to grasp the economic outlook of India is the most recent WTO Trade Policy Review: India (2 and 4 June 2015).

Some very good news for Sirius Minerals (SXX) today, with the publication of their corn and soybean crop study . The size of both these markets is material. Potash producers, sit up and take note. With no reason to hold this stock currently, one has to factor in the viability of the polyhalite being a tempting factor. Good news to assist the management in their fundraising.

Can Glencore's woes get any worse? We'll let those more inclined to see what the impairment should be on their thermal coal operations. However, their miners may actually assist the price with planned strikes etc... South African mine union threatens legal action against Glencore’s job cut plans. Remember, Anglo impaired their Australian Coal and Minas Rio assets in July by near $3.5B. Glencore blame ESKOM for the woes, perhaps they should shut some production? FT Glencore South Africa (Optimum Coal Unit). Has GLEN not been so exposed to thermal coal, then they would have fared better? 

One hopes EDF Trading Resources gets there $125M from the sale of their share in the Pennsylvania Land Resources Holding JV with Alpha Natural Resources (NYSE: ANR). ANR has natural gas assets that may pay some of the bills, but they can finalise those valuation with a chapter 11 wrapper. Over to Rhino Resources (RNO) to take a kicking as well...This doesn’t bode well for the The Market Vectors Coal ETF (NYSE:KOL) that's performed like a proverbial dog. 

Limited time to cover Fresnillo (FRES) interim results but worthy of further work, especially around the costs on an all in basis increasing. Sensibly, FRES have reduced the exploration budget for this year in light of more challenging precious metals market conditions. It would be wise not to ignore the benefits of the hedging programme either that benefits the bottom line. CAPEX for the full year 2015 has been tapered back but still expected to be in the region of $570m (vs. previous expectation of c. $700m). Whether they can achieve the 570m target is another matter. 

Atb Fraser

Morning Mumble: Sirius Minerals (SXX), Lonmin's (LMI) surely heading for AIM & AMC's bounce.

Good Morning,

Sirius Minerals gave an s, update on the key proposal that make it difficult to find any reason to hold the stock in the short-term. 

• Approvals close out work ongoing during government call-in window. Sirius have perhaps created a risk for the Government to hold an enquiry by the expansion of the production model being proposed. Although unlikely, it has to be consider. 

• Final decision notices for key approvals expected by end of September 2015. This timeframe may have to move significantly especially in light of a Definitive Feasibility Study (DFS) being published in Q4, although this may be Q1 2016. 

• DFS being finalised with input from approvals and key contract tenders. 

• DFS results expected to be published during Q4 2015

• Financing to focus principally on debt provision, split into two stages. The risk of performance is on stage one of the financing where there's likely to be a significantly higher element of equity requirement than in stage two. Perhaps most of the debt liability will be disproportionately weighted towards stage two. 

• Stage one financing expected to be completed by end of Q1 2016. Positive in so much as they wish to limit dilution, but...

• Good progress continuing to be made on polyhalite sales to support financings. Expect further news on this with some deals awaiting the "approvals" stage. This will also go to support / derisk the "call-in" possibility by National Government.

The expansion of the plan to near 10mtpa/20mtpa also brings with it a significant increase in CAPEX, although with operating cost benefits. Save for any corporate type event there's likely to be no reason to hold this stock unless you're "very" long-term. 

One has to wonder whether SXX may be considering a royalty type model with an upfront payment.

Iron Ore was thankfully trading around 5 minutes ahead of Rio/BLT's stock with the spike overnight benefiting the miners. This brief rally will benefit Atlas Mining's fundraising efforts. 

For those concerned about the AMC (Amur Minerals) position, its wise to revisit the 2007 SRK DFS and assumed pricing. Whether the project is profitable at $7.50-$9.50/lb is immaterial to the realities of today. Including amongst other things, rising inventories and all this whilst Indonesia restricts exports etc...the Supply Demand assumptions are warped. 

A quick glance at LME nickel stocks over the past 5 years gives a good indication of why there's price weakness. With near 1/3 of total annual world consumption just stored LME. As shorts take their profits expect a bounce in the short-term, true value will out!

More later...on China's commodity grab (QE). Is Lonmin LMI heading for AIM? What is LMI's capital requirements for this year with PGM's near their lows $1030/oz.  Some very interesting gold trades in Asia/America suggesting volatility is coming. 

Atb Fraser

Morning Mumble: Schtump by SHCOMP & SZCOMP! Copper, Iron ore and market woes + Iron ore & Nickel.

Good Morning,

Having had a late night/early morning, its at times bewildering to see the latest actions on the Chinese markets. Not only are insurance companies wading into the market to "assist" with stability but companies have woken up to requesting trading halts (Reuters). It’s now approaching near 1/5th of the 2800 on the Shanghai and Shenzhen Stock Exchanges are now suspended. 

How the reduction in trading costs will assist with the support of the Markets. It was not restrictive before nor the cause of the volatility. Anyone would have thought the cause for the fall was the prohibitive costs of trading. 

China has also restricted the size of purchases of CSI 500 index futures to 1,200 lots for rise and fall. In a bizarre turn of events, the Central Huijin Investment Company (CHIC) (financing arm of the Chinese government) has started purchasing ETF's at an undisclosed rate nor with any guidance of for how long or what funds etc. Likewise the funding restrictions in on commodities is not helping Copper et al, on a pivotal $2.50/lb (circa). 

China Securities Finance Co. (CSFP) is now cashed up, as per EMC: PBOC providing funds to CSFP. So with State Owned Enterprises (SEO) listed on their markets, the Chinese are merely buying them. Limiting the transfer of wealth from Government to Comrade/Citizen. Disorderly all the way. 

From this morning (EMC link) (in full in italics)

In looking for a long position, it's likely any such long trade on trade on the SHCOMP and SZCOMP would be foolish on Chinese markets (without a good set of indicators)

With the Chinese government attempting a soft landing in most areas from property, employment and now the stockmarket, it's pertinent to consider a new dawn approaching for its overheated margin fuelled bull market, that's now having a contraction.

In 3 months (September) the HK-Shenzhen trading goes live. This may provide a brief element of support, but the theme is set, irrespective of whether the Chinese government can halt the selling in the short-term.

The Chinese government should look at the Hang Seng Index before any further intervention. Although the wider populous will not like the results, on comparative weighting the SHCOMP and SZCOMP look positively overcooked.

China needs a stockmarket, but with so many investors already torched, at what point does the bubble pop!? It doesn't bode well for the long term if primary brokers, acting in concert, agree not to sell stocks, more so create a fund to buy them. Although the terms of such purchases are unknown currently, one suspects they are not buying the crap!

Cyan Holdings (CYAN) give a trading update that's so full of jam, anything now above cash value is looking like jam. A perennial failure to deliver and they appear to have found some intelligent folk to stump up £4.6M gross. Its now well-funded to seek to secure more orders and increase revenues. Promise + Placing has so far not delivered the = revenue.

The placing at 0.2 pence may provide support in the short-term but as cash burn occurs so will the SP in the absence of an order. The placees appear totally unaware of the previous promises and lack of delivery. Having had 3,279,766,136 shares (2014) and 2,797,766,136 share (2013), the trend isn’t looking good with 6,780,873,628 mid-way through 2015. Some dilution...

With very limited company news, save for the obvious commodities debacle with iron ore hitting $52.30-53.15/t Atlas's short lived recovery may me look like a historic glimmer of hope (dead cat bounce) with funding. Although, all parties should be congratulated for working so tirelessly to at least attempt a recovery, the crucial funding phase is due...soon (well maybe). 

With AU$58M committed so far, will the backers take a leap of faith! Rather them than I! Or at least rather them with someone else's money! They need a further AU$122M minimum, and their job has just got very hard indeed with the iron ore price being trashed a further 20%.

With limited support for iron ore, including an absence of speculation, one has to ask, can iron ore hit $33-37/t? Having thought long and hard about this, margin/speculation down, demand down, over-supply, reducing steel mill capacity, its simply not sounding rosy. The road may be merrier for nickel pig iron as Chinese inventories deplete and a "normal" market environment starts to appear. 

With Nickel floundering around $5.1175-$5.3080/lb there's limited prospects for producers. In the absence of a recovery in price, the market will force a recovery by shelving expansion plans. Thus, a conviction short on Amur Minerals (AMC) is maintained (although still reducing with wisdom (taking profits)! The nickel market is admittedly fickle with lumpy trades throwing the price, its wise to be cautiously bullish to $6.15/lbs

How will the liquidity and financing crisis that is developing impact on Central Rand's $150M (up to) sale. 

Atb Fraser

Morning Mumble: Is Greece's agenda paying off? SHCOMP etc...Copper (FQM), Iron ore, Sierra Rutile (SRX), CMCL &...Margin Margin Margin!

Good Morning,

So the vote about "terms" that were allegedly withdrawn has taken place and the outcome is now being consolidated by those denying the gravity of the situation Greece 'feels' it’s in.

Since Tsipras's election and formation of a coalition of sorts, Greece has been on a train with one track and no other routes or exits for its destiny. Not only will this have implications for Greece for the longer-term (35+ years), but will raise doubt over Europe's ability to keep its members in line (the status quo).

China is not assisting matters, with the press realising (belatedly) that the Chinese Government [was] is providing liquidity to the CFD/Spread bet companies offering margin. EMC:Margin and Securisation (03rd July 2015).

Over the weekend, the FT ran with Chinainjects liquidity in attempt to reassure markets. The CSRC (China Securities Regulatory Commission) has come out and stated what the market was aware of. The PBOC is now providing finance to the China Securities Finance Corp (CSFP) to maintain the stability of the market. Is it a case of one cannot be seen to lose on the markets, where 300+ funds have been created since February, with the majority betting long.

These actions and a blind belief of stock performance have created a squeeze of immense proportions The CSRC is tasked with attempting to stabilise something they were warning about in December 2014. 

Those fund managers "speaking positively" [99.9%] are being given the financial muscle to create stability. The PBOC, via 3 financial houses, has been in the market for huge chunks of equity, in specific entities across all sectors (34 stocks in total). One assumes giving greater liquidity in the market or slowing the fall.

The Chinese Government think "stability" is now the main staple of the day. With such a large percentage margin trading, near double the reported figure in the FT (17%). The margins/leverage on Shanghai Stock Exchange Composite Index (SHCOMP) and Shenzhen Stock Exchange Composite Index (SZCOMP) and SouthChina Morning Post (SCMP), is actually near 30% of the entire market if one includes the grey market. With the grey being the biggest risk to any stability, due to the leverage multiples that have been offered compared to the CSRC regulated houses.

In December 2014 the CSRC carried out "out on-site inspection" of the majority of securities firms including margin trading and short selling, pledge-based repo and securities trading with repurchase agreement. Not only did they have concerns about the rolling of positions but the amount of leverage that was being offered.

The basis of the investigation was to head off any financial boom and bust type squeezes. It did just that with commodities speculation being reduced massively, with most across the board losing any form of support. Time will tell, but it’s wise not to bet against Goliath's determined to avoid any inference of failure.

Quite where the train of IPO's and delisting of Chinese entities from Global Exchanges goes now is a question that will need answering. The Chinese market is reliant of the Emperor's new clothes to bet long. Without the onslaught of IPO's to maintain silly valuations, people will quickly start to close their positions or avoid betting on the crap.

The crap will have other companies reversed into it, to enable a perceived quick route to a Chinese listing where the regulator doesn't like sellers! See Focus Media's attempts...Reuters (June 2015). This is not the only one either! SOE (State Owned Enterprises) are going to have a rough time of it shifting of the PRC (Peoples' Republic of China's) balance sheet and into the market.

All China’s main brokerages have agreed not to sell shares, perversely so the market can recover to 4500, currently 3,775.912. There's a long if ever there was one! Additionally they have had a whip round and put near $20b into a fund to assist the “Government” with stabilisation. Please note, the Chinese Government / PBOC is likely to be spending near $100B on a similar basis and has also been active in the market! 

Moving on to ASX, FTSE and AIM, with Australia waking up on a Monday to a shock of a horror. Lo and behold commodities dropped and so did the stock. Iron Ore producers were pleasingly punished, (they ignored the Chinese warnings from EMC:warnings from Xinchuang Li  and now the price-setters are making hay whilst the sun shines. It’s not the best market with demand down and the price setters’ appetite for any premium being unplayable. One wonders if there's two steel mills margined up to the hilt speculating not only on Copper but SHCOMP & SZCOMP. 

With one major shareholder in the “China’s Shanghai Chaos fund” needing a little collateral, the fund closed its entire position on Friday/Monday.  Not necessarily the best time after the article by the FT on copper, China’slow rates sound death knell for copper carry trade by Henry Sanderson. A very good piece, which covers the woes of the industry. The read across to other commodities is also likely. 

How does this impact on First Quantum Minerals (FQM), where their production is not only in breach of the ignored covenants but also raises serious questions of the viability of the project being a "bet on the appreciation of copper." (EMC:FQM Gloat & EMC:FQM Moving the goal posts). This is just after Canaccord Genuity places a buy note out with 20% ish upside.

How all these commodity crashes and the like have propped up China's economy is another question. With factory gate prices, inflation and growth all having an impact, is it still wise to pin the tail to circa 4.5% realistic growth when stripping out wastage? 

Caledonia Mining (CMCL) give a Q22015 production update  that is in line. With the company actively managing production grades and looking to maintain the longevity of Blank Mine it’s a positive update. With the revised investment plan looking to benefit production from 2016, the company is spending its cash wisely.

Production up, although comparatively speaking production costs are creeping up again! From $959/oz. on an all in sustaining cost (AISC) bases to $969/oz. AISC eroding 1% of the 4.7% increase in production from the previous quarter. Production is still down 7.4% on the LFL comparative quarter in 2014.

What is not commented on is the grades impacting on the AISC that have spiked near 7% on the comparative quarter from $903/oz. to today's $969/oz. Overall a positive but those costs will have to be kept in check. One assumes with the sinking of no 6 Winze this has had an impact on operational costs as well?

With limited time, Sierra Rutile's (SRX) share price recovery is justified on the back of today's Q22015 production update. Having previously found little hope for rutile prices, the company appear to be managing the company pro-actively.

SRX's cash costs have been managed very well. Costs reducing from $799/t in H1 2013, $609/t in H1 2014 to today’s $527/t., mostly on the back of an increase in Rutile production and they reiterate they’re on track to meet their rutile production guidance of 120,000 - 130,000 tonnes.

All this whilst planned shut-down of the Lanti Dredge Mine for maintenance and commencement of construction of the Gangama Dry Mine being on schedule and budget! With some cherry topping, completion of the Sembehun Dry Mine scoping study. It highlights long-term dry mining project with strong economics. One will have to wait and see. Perhaps some green shoots at long last, at about the money and a recent broker appointment, its wise not to rush in.

Atb Fraser

Morning Mumble: CIC Gold, Rurelec (RUR) the debacle and questionable business, Juridica (JIL), Mundane Iron Ore (again), TYO, MIO, DCE and Anglo Pacific.

Good Morning

CIC Gold Group Limited whom allegedly has prominent Chinese gold miners and international mine developers as backers intends to list. It will be certainly an interesting story to follow with various entities struggling on AIM or giving dire returns there's hope for CIC, or is there?

The story doesn't start with CIC Gold but with CIC Capital. CIC Capital notoriously went from sub 1 pence to 10 pence on the back of very little and then subsequently suspended/delisted in 2014. Of course, the current holders are 'looking' for growth. 

If one is contacted by VSA or similar regarding the IPO, it would be wise to ask what DD has been completed on this company including whom the “prominent Chinese gold miners and international mine developers are involved." If one has the time, the prospectus is here. It would be wise to look at the number of shares (the issuance of) and why they have been issued to CIC Capital. 

Rurelec's debacle is not over yet. Today there is a wave of announcements, some that shareholders should perhaps consider more positive, one that is not is the "gifting" of IPC to Peter Earl by Rurelec as he departs. I think RUR have rephrased "spinning-out." 

RUR purchased IPC for £16,560,483.87 including the two Siemens Westinghouse 701 DU turbines that were subsequently sold for £1.2M leaving some £15.3M valuation for IPC. How IPC, can "spin out" (changed as I was typing) to "remove in excess of £500,000 worth of overheads out of the Rurelec Group" is questionable. If all the assets and liabilities have been transferred into Rurelec. One assumes they're factoring in Mr Earl's £230K remuneration commitments? 

What is laughable is, IPC was meant to "accelerate Rurelec's organic growth and increase Rurelec's global footprint." IPC & Rurelec share the same offices, on the 17th Floor, Millbank Tower London. Were their separate staff being transferred out, name Peter Earl and associates? In essence the savings are not savings to RUR in the true sense of the word, without clarity on what "savings are being made). We'll ignore the director loans to a subsidiary but these under Related Party Transactions in final results out today. 

Should the "independent directors" not check with the NOMAD whether this transaction (Spin-Out) is fair to shareholders? In fact, having acquired IPC to increase their footprint, the "nominal sum" payment is laughable, based on potential goodwill and positioning in the market. 

IPC, as a company has a brand value (including goodwill) over and above the assets. However, having been a shareholder in RUR previously and sold out after the dire issue of the International Arbitration and subsequent misunderstanding of Third Party Litigation Funding. It would be wise to reconsider any position if the company cannot protect what assets it had left (or has). 

Should you consider Peter Earl a net seller in the stock now? Having been in consideration of the Jam Tomorrow Award, this may prove very unfair. Perhaps RUR are now being upgraded for consideration of the "destroyer of any value for shareholders award." In gifting / spinning out IPC at a nominal sum! The company would be hard pushed to justify the sale (now spin), when in IPC's own website words, http://www.indpow.co.uk/,

"Independent Power Corporation PLC is one of the United Kingdom's leading power developers and power plant operators. Founded in 1995, IPC has developed, owned or operated 7,000 MW of thermal and hydro power generation facilities in North America, Latin America, South Africa, Asia and Europe." [Within Source of website ]. This was subsequently changed to,

IPC has owned, operated or developed over 4,000MW of thermal and hydropower generation facilities in Latin American, North America, South Africa and Europe. (Current)

IPC's brand/business/company even as a shell should be marketed for sale. 

Having taken profits and dividends in both Juridica (JIL) and Burford (BUR) today's portfolio update was negative on the bottom line. Measured in NAV, JIL is valued after today around $150M (ish) without checking. Consequently, the stock correctly repriced the stock 88 pence. 

With some volatility in JIL at the moment, it’s hard to justify any share appreciation based on the NAV. As a result, a disappointing 17% return over near 3 years on this investment, allowing for today's sale with no further holding. Better than most bank returns but disappointing. Time will tell whether its wisdom to hold Burford (BUR), performing better over the 3 years with a better blend of small dividend and share appreciation (50%) ish. 

The iron ore price gave the proverbial kicking to the producers. Sensibly the drop away from the ceiling set by the Chinese (EMC: Mundane Iron Ore Spot Price) is now a reality. With some hedgies banking significant profits. This was a common-sense trade, especially in light of the reduced imports that fell 8% in May to just under 18MT’s for 62% fines but the price has temporarily. 

There’s a lack of speculation in the physical spot prices / supply / immediate delivery including that on the DCE (Dalian Commodity Exchange). Closing positions on Copper and Iron Ore on the basis they are currently linked. Copper, with the dollar's weakness and potential restock has a greater degree of risk in the short, than Iron Ore. Iron's critical level of support circa $60/t (62% fines) and 65% fines now sub $70 and looking for support. Seven days previously at $74/t (6% decline in a week). 

With steel prices softening in China due to lower demand, iron ore is logically following suit. The belated restocking, was a convenient necessity for all concerned push prices up off the lows. The lack of sustained demand will have the speculators looking to any further declines in the ports inventories just keeping its head above 80m/t's. As a result, in line with the dropping iron ore price, the SP in Rio, BLT, Vale and FMG have all followed. 

A question for the majority of Energy Resources of Australia (ASX: ERA), in light of all the news on Ranger 3 Deeps project – further update and Rio's inclination to avoid funding much further. What reason is there to hold the stock further? Denial? 

Save for some Knight in Shining Armour, of Chinese lineage perhaps? Rio and ERA have appraised the feasibility of expansion and simply, in the current outlook, it’s non-viable. This does not bode well for the other producers if an established entity cannot find economic reasoning to extend LOM (Life of Mine) and justify investment. One hopes if they are also Atlas Iron holders (ASX: AGO) they can keep merge this disapproval in a joint email to save time! 

The market is mystifying at times, on the one hand its prices in any risk (proactive) and likewise, it reactively points out the obvious. Today selling the remainder of Anglo Pacific (APF) and closing spread bet positions. It would be easy to think I've lost my marbles after a decent recovery and better outlook. Well simply, if the Coal Settlement Contracts are as announced it doesn't bode well for Kestrel. Rightly as Roger Bade points out, "it's not good news for APF". 

APF are diversified, but one cannot help to wonder if there's a swelling in supply. How this bodes for US exporters/producers is another question or Mitsubishi Corp, whose share price has seen a decent recovery of late, near 25% gains in a year. Admittedly significantly more diversified than APF from Banking, Food, Machinery, Chemicals & the all-important energy. For those trading the related stocks TYO (Tokyo Stock Exchange) one would be wise to consider the implications. 

Finally, Minco (MIO) announce further drilling results. It adds nothing really exceptional at this stage to the value of Bachans, due to depth and narrowness of veins. As tight as 85cms in depth) and as narrow as 50cms in width. Back to that old chestnut of strategic speculation by the Chinese and potential JV/total sale. Buchan's may need a revaluation in due course, after more drilling. 

Atb Fraser