Good Morning,
Today's Q2 Production Report from Antofagasta (ANTO)
gives some idea of the woes for the industry. It doesn't look great even
allowing for reduction in supplies to market including the recent near
200K/t's drop in guidance from other producers, the Zambian load-shedding
(EMC: Yesterday)
and ANTO's own guidance revisions downwards to 665,000/t's of copper, as a
result of some commissioning issues on the crusher circuit.
Conveniently ANTO don't give their previous guidance, so
here it is. For 2015, it was 710,000 tonnes of copper, 250,000 ounces of
gold and 8,000 tonnes of molybdenum. Not only do they have the woes of gold
prices being at lows, molybdenum price being at a level it's questionable
whether it's a viable to process it, and cooper down 45,000/ts. (EMC: Rio molybdenum (Mo) woes). As a result ANTO's cash costs
are on the increase due to the MO price and lower than expected production. One
would have thought with the USD: Chilean Peso (CLP) strength, there would have
been of greater benefit, but this will perhaps be reflected in Q3.
Luckily for ANTO, there may be some hope for the copper
price thanks to the markets white knight known as Freeport-McMoRan (NYSE:
FCX). The market may think FCX's planned production and cost cut backs (FCX Site PDF) will
assist the cooper market. But with the absence of a magical ingredients, prices
are likely to stay lower and for longer, this time. FCX are unlikely, like Rio
or BLT, to give up market share for the sake of the higher cost
producers.
Over to FCX, today announced it has undertaken a
comprehensive review of its operating plans in its mining and oil and gas
businesses to target significant additional reductions in capital spending and
operating and administrative costs in response to weak market conditions for
its major products. These plans will also incorporate potential adjustments to
mine plans and future copper and molybdenum production volumes to reduce costs
and preserve valuable resources for anticipated improved market conditions in
the future. The company expects to complete this review promptly and will
report its revised plans during the third quarter of 2015.
James R. Moffett, FCX’s Chairman, Richard C. Adkerson,
Vice Chairman and Chief Executive Officer and James C. Flores, Vice Chairman
and FM O&G Chief Executive Officer, said, “We are responding
aggressively to current market conditions affecting our primary
products and to the uncertain global economic outlook. These initiatives are
focused on maximizing cash flow in a weak commodity environment and on
strengthening the company’s financial position. We appreciate the efforts and
dedication of our global organization who are supporting our plans to implement
revised operating plans. We have a positive long-term view for our markets, the
inherent values in our large asset base and are positioning our company for
long-term success.”
The copper and wider commodities market are lacking the
magical ingredients Chinese speculation and margin. These have been absent for
some time (including shadow financing) and are unlikely to return without some
significant stimulus from the Chinese Government. All compounded further by a
basic approach to commodity back financing that has been in contraction and
limited to a basics approach.
This brings us to the question of those with copper in inventories and/or in
transit priced significantly higher either, that had a muted response to the
FCX news (VED/GLEN?). Especially those needing to deleverage some $18B of
commodity inventories (across the board) to maintain their credit rating and
profile! Perhaps GLEN have signed up for an Experian Credit account to "manage"
their credit file?
Continuing the theme from yesterday on load-shedding,
it would appear Barrick Gold (NYSE:ABX) have forgotten to update the market on
the load shedding issues in Zambia for their Lumwana Operations Reuters. Perhaps Vedanta, Impala and Glencore are also
immune or do not feel the need. Then again, perhaps Barrick need to work out
the cost impact at a C1 level as they will now be marginal. Expect cost
revisions near $2.20/lb (C1) and all in near $2.80/lb (EMC estimates, no plagiarism
folks).
Question of the day, seeing as China Securities
Regulatory Commission (CNBC) is investigating companies and individuals
selling stocks, what can they sell to cover those margins? Cars?
Houses?...Also, which Beijing bank (non-state) has the greatest exposure? The
hunt is on!
Sylvania Platinum (SLP) have released 4th Quarter results. Operating in the PGM space they
aren't great. They've had some cash back from Ironveld, spent some on share for
"employees" of shareholders, and its unlikely any dividend will be
made. The potential benefit is the selling of a few assets (or divestment) and
maybe a low ball offer. As a holder, one hopes you sense my unfulfilled
mind-set to this stock. As a punishment to myself, and a form of self-harm
these will not be sold (self-harm).
Finally, JKX Oil release their half yearly results. Dire, although perhaps some hope from the Interim Award International Arbitration Proceedings, it’s still not a stock for any widows. More a bet on a geopolitical and financial improvement in the sector.
In other news today, LGO Energy drill another well. Having sold this holding and gone short, there's no rush to buy back any time soon. One would be wise to wait until the result to assess the viability of the company. Perhaps we were guilty of being too keen (EMC:) closing LGO Short too early. LGO have given no update on its financing and one has a suspicion revenues will soon be committed to interest and debt repayment. Profitable for the lender perhaps but shareholders?
Atb Fraser
