Weekend: Juridica (JIL) and Burford (BUR)

Good Afternoon, 

Juridica (JIL) - in June we saw no benefit in holding. We believe in the third party litigation model but saw limited to no upside in Juridica, preferring Burford Capital (BUR). It's prudent to take some profits on Burford with 90% over two years not to be sniffed at. 

EMC: Juridica from June:

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.

Juridica are contemplating winding things up - they appear not to have the size or traction to absorb losses after the portfolio update (16 November 2015). Juridica provided case funding of $3.5M and are likely to receive around $2M ($6.9M below case valuation). They state they’re considering an appeal but…

The corporate review of operations was a little surprising (18^th November 2015) – it appears JIL had discussions with some shareholders. They state they envisage no further investments will be made and elude to a potential a change in business purpose or operations in a different sector – finance? SME lending? Biotech? Who knows...? Also a wild card of there being some form of tie up between Burford and Juridica - although unlikely.

The Board announces that the Company will not make new investments (other than for funding existing investments in the Company's portfolio where such funding is reasonably required to realise maximum shareholder value).

Will seek to return capital to shareholders in the most appropriate manner, following the completion of investments.

Comprehensive review of all its cost and fees structure, with the objective of reducing the ongoing costs and fees of the Company given the investment approach set out above.

We feel Juridica’s fair value is around £62.5m lower end (57p ish) to £67.5m top end (61.5p) - although there could be some benefits from higher than expected return on certain cases and/or cost savings if no further investments being made.  

Atb Fraser

GBPUSD Exchange rate used £1:$1.52 / Number of shares 109.98m

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

Morning Mumble: BHP's South32 (Short32) allegedly less debt & BLT favours, yeah right! Rio's SP10 *(No Sun-protection) and ANTO.

Good Morning, 

There appears to be a lot of misinformation surrounding South32 in the press, where the journos need to take their socks off. There's no way in the world BLT could have loaded Short32 with any more debt, without significant risk to its debt rating and/or higher borrowing costs. Worse, the press have ignored the level at which BLT would have created a defaulting structure that would breach the legal requirements of corporate governance. 

The press ignore the fact that BLT have to ensure that South32/Short32 must be able to operate as a going concern. The commentators prefer to 'believe' that BLT are doing Short32 a favour by reducing the debt. When the sums of the liabilities are put to a total, they are in fact higher, merely labelled differently. 

For those not wishing to split-hairs, the liabilities are higher than 'consensus' with rehabilitation and closure ($1.5B and that may be circa 15-17% on the low side) plus debt of $674M, taking the liabilities and debt to $2.174B, with a $1.5b revolving credit facility being made available. When one considers the on-going liabilities, excluding those clearly labelled debt, its going to make leveraging (without dilution/equity raise) for any acquisitions very difficult, irrespective of the alleged financial prudence attached. Let’s see how the dividend policy goes. 

BLT define South32, as having high quality metals that will be a cash generator, that allegedly the "larger investors" welcome. We'll ignore the volatility of the entire asset class, with a cursory prompt for readers to check the price movements of aluminium recently, manganese is under pressure and coal is not without its significant woes; not so enticing when put in context. Of course Short32's dividend policy will entice the low risk miss-believers into acquiring the stock. 

 

With Manganese, Silver, Lead, Zinc and Alumina making up near 38.6% of Short32’s EBITDA, Short32 may benefit from the Bauxite supply issues thanks to Indonesia's unprocessed ore ban, and declining stocks of Aluminium/Bauxite and Alumina, but how have silver, lead and zinc performed? With any further slowdown in China, don't expect too much in the way of price appreciation, more so a levelling out of both Nickel and Aluminium.  

Staying with mining, and an indicator of the state of the market, Rio yesterday put a tender out for a cargo of high alumina SP10 iron ore cargo. Suffice to say this cargo has had limited interest. The Chinese simply are not prepared to take it without a huge discount, in fact, many aren't/weren't prepared to accept it. 

Higher alumina (circa 3.5%+) content in iron ore causes the slag to become 'rather' fluid during the steel-making process. Processors can be blend the higher grades with lower grade. Simply put, pollution/environmental regulations restrict these deals and limit the price. 5 years ago, some savvy traders would have combined the deal with some low alumina ore from Vale, blended it and made a profit. In today’s commodity cycle, it’s simply not worth the effort or time for most, without a decent discount circa 10%+

Antofagasta (ANTO) have surprised the market with worse than expected preliminary results (2014). We'll save the readers from obtaining an accountancy degree and wade through the waffle in machine gun like fashion. Copper prices down near 14%+ on the corresponding period, taxation in Chile up (it’s only been in force since 1st October 2014/PWC did a very good peace around this time). With margins under pressure and desalination likely to increase costs per pound, what were the markets hoping for today? Simply put, if the investors haven't already priced in lower expectation, they should be from now one in, but all is not lost! 

ANTO's Los Pelambres issues will have an impact on the next set of accounts. With a trending reduction in oil/energy costs, ANTO only managed a cash costs before by-product credits at $1.83/lb, a modest were 2.2% higher than the previous year despite a decline peso. These costs will grow as the wage deals / salary increases kick in over the next 4 years and the declines post reporting period in the copper price.

On a positive, any weakness in the Peso will benefit the reporting cash costs and CAPEX/OPEX expenditure with net cash costs, including by-product credits being a healthy $1.43/lb. The potential upside from Antucoya, Encuentro Oxides and Centinela should not be ignored.  One might just start to turn positive on ANTO with its cash costs being an envy, save for any more radicalisation and issues at Los Pelambres (and the El Mauro tailings dam). The reoccurring theme of grades should not be ignored though but better than management guidance, nor for every 1% movement in the PESO (CLP), it equates to $0.0075 cents P+ve/N-ve to production costs at the current USD Vs.CLP (Chilean Peso).

Unnecessary cheer at Lonmin (LMI) with the appointment of COO Ben Moolman and Bowleven (BLVN) finally have the cash in the bank. The market "may" just re-rate the company, albeit past performance and sector/industry woes will hinder any blue skies beliefs. Juridica Investments (JIL) disappointing the market for no particular reason with their final results. A long-term hold with some very good dividends so far, illiquid so one for the traders as well!

Atb Fraser