Good Morning,
Importantly for everyone that reads the pink pages (via
whatever medium), the FT is Turning
Japanese. Amusingly, being well off the mark thinking it was Reuters, four
city folk were bang on the money. The concern being, that it was never
suggested that to gain entry to the city trading houses, one had to know the
lyrics and Turning Japanese as a desktop short-cut. We'll remain silent on
what that infers for those in city! Whatever next...
After enquiries about IT errors and the like, as a reminder
this is a channel for views, pending time.
It is appreciative that people source the views, whether
they agree with them or not, it's a pleasure to read people disagreeing without
referring to status or position with insulting terms. With apologies being
accepted, and thank you for them, its time to look forward. Perhaps, the EMC
will not be a dirty secret of a reference point in future, before penning ones
analysis.
Fear not though, there's a suspicion we shall disagree, but
now with a mutual respect. We'll see how it goes this afternoon, meeting with a
city chap whose views have differed slightly to here. Especially on copper,
iron ore, nickel and zinc. Who picks up the tab is another story and will
there be a bun fight!?
On to the carnage from of the market Lonmin (LMI), whom cut
this, reduce this, care and maintenance (C&M) that and look for further
savings. If someone has not thought of it already, perhaps shutting up shop
would support the entire industry. There cannot be much more to cut can there?
LMI have been sensible in placing those operations on C&M with least initial cost
(contractor mining). How LMI can make money including financing costs etc...at
anything below 1185 (under review as well), is anyone's guessing.
LMI's Q3 2015 Production update is woeful on all levels.
With the management now "defending" the value of shareholders.
Had this come in 2011 then perhaps we'd have been discussing something very
different. LMI is a prime example of inefficiency whilst attempting efficiency.
So, without pulling apart the numbers, its fair to say LMI are paying the
market to produce PGM's.
As mentioned in, EMC: Kumba Iron ore one suspect there's going to be an
increase in Lost Time Injury Frequency Rate (LTIFR). Sadly LMI
workers have been impacted by this as well, with cost cuttings all round,
there's a difficult balance between profitability, productivity and viability.
Sympathy to the families involved.
Some contradictory statements, but over to LMI refinancing
We are reviewing the appropriate capital structure for
the Company in the new pricing environment as we consider the need to
re-finance our debt facilities. The Board is considering the full range of
options available to secure long term capital and expects to update the market
by the time of our full year results in November 2015.
If any financial institution will stump up (via refinancing)
any monies (debt) without a commitment from shareholders, they'll be
brave.
Lonmin Chief Executive Ben Magara said:
"Lonmin is defending value for all stakeholders in
responding to the platinum pricing crisis by taking swift, decisive even though
difficult measures. Losing jobs is not pleasant but everyone is having to take
significant short term pain to preserve optionality for the long term. All
costs have to be reduced including labour and I hope our formal consultation
process will come up with mitigations to minimise job losses."
Ben's got his hands full, with a growing discontent in South
Africa, it's not going to be easy to "minimise" job losses. With the
number of unprofitable operations, it’s hard to minimise what needs C&M on
a grand scale. LMI, in my view, is not going a concern. The surplus in the
global PGM industry (far from assisted by Russia) will make it difficult to
justify any investment. If one hasn't noticed already, in the absence of a
Chinese aid package (and its being touted), opps one means investment, LMI is
destined for AIM at the very best.
In summary, to go long, without acknowledging all the
geo-political, economic and commodity related woes, would require one’s head
being looked at. Good luck to those on any form of book build. The facts are
clear, even with yet more cash, will it resolve LMI's profitability? Yes, but
only if operations are shrunk to an AIM sized entity.
Continuing in the same vein, we have Anglo America (AAL)
reporting H1 results today. Handily, if we do a quick copy and paste
from LMI, with the addition of "impairments, write-downs and flog this and
flog that" its makes life easier. So, AAL, whom cut this, reduce this,
flog this, care and maintenance (C&M) that and look for further savings
here and there, are not in the same boat, but it looks like the same boat
race.
We'll summarise quickly with net debt up at a staggering
$625 million to $13,496 million and a loss reported for the entire year.
Admittedly, there's post-period receipts for the sale of the Tarmac division of
$1.6B, which are being applied to debt (like they had a choice).
If anyone ever speaks to AAL anymore, could they be so kind
as to ask them to bump up the P&L reporting to near the top of the page. As
a few savvy analysts have realised it's stashed down the pile.
So AAL have....Commodity price-driven impairments of $3.5
billion after tax, including $2.9 billion at Minas-Rio. Productivity
improvements and indirect and capital cost reductions accelerated, with
disposals being progressed.
AAL have very wisely spotted that iron ore is at a
cross-roads. With higher cost producers disappearing from the market, these
have been replaced by newer lower cost producers. Kumba's lack of dividend is going to exponentially hurt AAL, nevermind the Exarro Resources woes.
De Beer's couldn't even save the day this year compared to
last, "De Beers saw a continuation of the market weakness of late
2014 during the first six months of 2015, resulting in a 25% underlying EBIT
decrease. In response to these market conditions, the business has revised
production guidance for 2015 to 29 to 31 million carats, while continuing to
focus on its operational metrics. De Beers also reduced unit costs by 10% in
dollar terms. Read across to smaller producers...
Why AAL is up on anything but the dividend today is a mystery,
and that is questionable why it's being paid. The Dividend can only be paid on
the assumption of sales receipts from other assets, failing this they'll have
to scrap it. This questions the sensibility of such a policy rather than
improve the balance sheet. We'll leave the summary to, at 30 June 2015,
Anglo American's ratings were Moody's Baa2 (negative outlook) and Standard
& Poor's BBB- (stable outlook).
Question of the day, were RIO/BLT were wise to machine gun
their way to capacity just to survive? An example being Roy Hill,
with Gina Rinehart continuing unabated despite some issues with the family
trust that may or may not need resolving.
Maybe more time later, although that's becoming a reoccurring theme.
Atb Fraser
