Morning Mumble: Prozac Anyone? Maybe a Coffee? Dr Copper & all taking a spanking - whilst likening Glencore's webcast to Star Trek's Captain Kirk & Engineer Scotty...plus the need to actually do a full days work whilst on Holiday. RIO finally surpasses the 2200 target price.

Good Afternoon, 

Back up, albeit briefly... 

It's been a while! Although far from inactive - it has been fun to relax and enjoy the holidays.

The views and positions here have pleasingly been validated by the market. A pleasant bet being honoured on RIO hitting (and surpassing) my target price of 2200 pence today! Now, with a tangent look at Glencore, with some analogies to Star Trek.

We'll ignore what the critics stated about the target prices here and on FTML, with some pleasing emails of acknowledgement. Stopped clock or not (as some called it here) there was no deviation. Not because of stubbornness, but the indicators have only become a) apparent and b) a lot worse than even those reading here thought. So why would one change their view over the longer-term? Perhaps revisit the analysis but certainly not change this view, at the moment.

Initial analysis started to appear more positive after Glencore’s webcast on the 2015 half-year report. If you have a position in any stock, in any country, it's sensible to consider the webcast and in particular the defensive body language displayed and the wide range of earnings guidance. Also, as a validation, a quick visit to Fortescue Metals Group (FMG) annual results that aided the selloff in Australia last night.

In the webcast (45 mins onwards (Q&A) section), it was noted that some analysts were rightfully enquiring about the leveraged nature of the balance sheet, specifically what flexibility there is in the working capital. 

The market is now waking up to the acknowledgement of Glencore’s wider guidance of $2.7-$3.7bn (Page 9 in Presentation). Being near 2 months into H2, one surely should have been able to be more specific or is there lot of hope being priced in? It does suggest there's a lack of confidence in their operating divisions including Russian Wheat export taxes, Canada grain harvests and the copper / oil woes and finally, China.  Is this representative of the current wider global theme?

Least we not forget Glencore's thermal coal adjustments. Despite assertions of profitability and low costs, why did Glencore have “no other option but to scale back 18MT’s of thermal coal per annum.” Is it implying that Glencore are not understanding the full extent of the market deterioration in commodities, or perhaps across the board? Not a good thing if you operate in such fields.

There are a number of issues Glencore's copper division appear to have missed. One being that the "sudden" appearance of significant physical, that is suggesting a destocking of inventories. We are even starting to think that it suggests the Asian market had stored significantly more than what the market had allowed for in warehouses and of those cashing out (by pulling levers).

Having had a target price for Glencore of 165 since from Xstrata (XTA) merger completion on the 2 May 2013. The risks are still there in China, Russia, Canada, in fact every area that Glencore has an operating divisions, but more importantly net debt and its ratings, inventory valuations (and consequences of hedging), whilst being in a global deflationary environment.

Glencore are in a position of being forced to sell off assets, allegedly non-prime/central to Glencore's needs. We note Glencore announced the sale of Tampakan, Falcondo and Sipilou on the 14th August. The buyer, a subsidiary of the Alcantara Group (via their subsidiary Indophil Resources NL) appear to have benefited from Glencore's woes. Not forgetting that the sale also proves the case that yet more volume is hitting the market. Or are Glencore and the market believing that Indophil purchased these assets to do absolutely nothing with them? “Give o’er…” as Polonius said in Hamlet!

There's going to be a temptation by funds to start averaging down given the current price compared to the IPO. We'll ignore the warped belief of the investment case for Glencore, but some 'averaging' down will give risk to shorts in the interim. Without further woes in the price of oil, copper and agri-commodities it's “about the price” (for now), with more volume likely around the 150 pence.

Simply, Glencore is no-longer a conviction short, until further testing and understanding. Namely, “how bad is it really in China?” China’s next about turn in policies, devaluation and protectionism is likely to answer that. To the detriment, of course, of their trading partners – both Asian and global.

It’s ironic that Glencore go as far as to blame 'aggressive' short-selling on copper woes. Hang on a minute, don't Glencore have a copper trading desk? It would be a fair statement if they were but a "mere" producer blaming the woes of the market, rather than a fully integrated Goliath.

It’s rather taking the biscuit to point the finger when you have a capital intensive trading / marketing division? Were GLEN the counter-parties of such positions? What is the impact of the Russian export taxation on profits, with most trading houses with active positions from June taking a large hit?

If we liken Ivan Glasenberg to Captain Kirk and Steven Kalmin to Scotty the "engineer" from Star Trek, it is bemusing to review the discussions in the webcast regarding debt, working capital and trading/financing deals (Circa 50 mins onwards). 

When pushed on the debt position, debt rating and the hypothetical situation of $2/lb copper, Capt. Kirk/Ivan explained the benefits of being a trading house etc...Where there is flexibility in business model. Steve aka Scotty was able to step up the power or reduce it accordingly by these magic levers to reduce working capital, change the interest rate on internal lending to trading / marketing or look to derisk financing positions with third parties. Warp speed anyone? Perhaps Scotty in reality is “giving all he can Captain?!”

Admittedly there's evidence in the webcast of both Capt. Kirk and Scotty not understanding the business. Glencore need to reduce their debt by about $8B and essentially by as much as the carrying value of the inventories. Why was there no comment on the reduction in volumes across their divisions? After all it’s essential to trading to have volume.

Glencore’s biggest concern is its inability to call the market. One would have thought the overall theme of a market would have enabled better guidance rather than statements about “China being weaker than anyone envisaged.”

Likewise, Scotty suggested, that one can simply reduce inventories and/or working capital in addition to intra-company loan rates. This may actually be harder than what Glencore have previously done in the past. Especially in light of volumes of commodities available in the short-term. Their selling, could actually warp (speed) the market further (at least in the very short-term).

Glencore have failed to consider the currency benefits of a strong dollar on the marginal producers, that are given (yet more) lifelines. Especially as America “hops along” to an interest rate increase (but no doubt delayed by 9 months+).

The currency beneficiation has not only helped the likes of Kaz Minerals and FQM stay in business, but most other leveraged players. The ability of producers to ramp up to reduce the costs further, whilst  putting a glut on the market, is under-appreciated (at present).

Admittedly there's some hope, Glencore think the worst is over in agriculture - with the new wheat export tax now having visibility. Glencore appear to think there's near balance of supply and demand in copper and the market price is false. Ironically those statements were made just before the PMI data for China (1). The market is waking up to just how leveraged and unstable/weak China was, but one suspects not how weak it is. Could Glencore have been overly optimistic, so far it would appear they are, and perhaps will still be. 

An example being copper piping, where over the weekend Li informs us there's a couple of cargoes going for a proverbial song. Has someone perhaps been caught on the hop contractually? More on this later, if we manage to find out a price.

Yet in contrast to these cargoes (as a snap shot), analysts are banking on China spending on the electricity supply grid and infrastructure. This may actually be a pointless exercise as energy use has reduced near 3%, one cannot see China being able to afford the previous levels of wastage to support the economy.

Whilst avoiding being gleeful of near 4 years work in commodities, one suspects the market is now at risk of capitulating to a bear market, with the wider ramifications needing further analysis.

For copper, there are contradictory indicators coming out of the sector. We have Platt's* on the one hand forecasting growth in 2015 of near 5% whereas ICSG (International Copper Study Group) at negative 3%* (Source: ICSG PDF File). That's some range considering what the implications are at an economic level, although more recently there have been a few production issues in the market that may provide support (based on a reducing supply). 

Like in China, are we now going to see the forced selling of stock pledged/secured against loans or mortgages globally? What of the collateralised loans? Or perhaps with a hope of security “in cash” now being forced to sell. An example being the sale by Martin Rowley of First Quantum Minerals. Whatever the reason behind Martin’s sale, one suspects there’s going to be more globally, whether current or former management of most companies. It’s certainly the case in China, Asian and Pacific economies.

Freeport-McMoRan (FCX) are a prime example of expanding into the rout of commodities. They are yet to press the button for equity (perhaps due to lack of interest). Are they waiting for glimmers of hope in the commodity prices? One suspects they cannot wait much longer without a restructuring/raising.

China have significant problems that without a multi-pronged approach to their economy, without some form of foundation building rather than bubble focus, their economy will continue to raise concerns. The next trend (reiteration) is likely to be PFI (Private finance initiatives) or PPP's (Public Private Partnerships).

The Chinese have very cunningly been creating their own supply chains, whether Aluminium, Steel, Copper, Nickel, Coal to petroleum. This is evidenced in Taiwan, where they have felt the might of China in the semiconductor market.

Taiwan’s semiconductor exports were significantly larger than China, their market was near 3 times the size of Chinese in 2009 but is now is en par with the Chinese market. Like solar panels in Germany, this expansion into a commercial space and supply has hurt them. Many Emerging Markets will have to consider the implications of the determination of a weakness in their currency, with a reducing demand and reducing level of investment in their countries. Examples being Taiwan, Thailand, Korea and Japan.

If one considers read across of the semiconductor market in Taiwan to the copper draw/demand on copper in China. Then China’s demand/needs may not change that much, but what may is the demand from predominantly emerging Asian markets that have relied upon China. These markets have only just woken up to the fact their industries have been replaced/replicated.  

One cannot ignore the compliment from a devout critic of the views here, where "the macro environment commentary on China/Asia and India is very accurate and almost psychic here", (to quote one reader. Maybe it's only one reader!

May be a little biased of course, but one would be hard to disagree in light of the carnage on the markets and ensuing ‘recorrection’, reading back and comparing here with the realities of the PMI data and those of the bulls of the commodities. 

Why did this blog post became so popular over the weekend, EMC: Fanya Metal Exchange. What of others? Perhaps it was after this article about angry investors capturing the head of Fanya metals exchange (FT). Quite how much commodity do physical ETFS have, what are the implications for the Jo'burg PGM ETF's etc..With humour, should one be factoring in security costs for under-performing companies?  

Atb Fraser

*Platt's from memory does not distinguish between refined and unrefined copper whereas ICSG is focussed on refined copper. 

1) Add Diary of Release Dates for PMI information to your diary. 

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: SHCOMP/SZCOMP farce. Gold & Silver's weakness despite demand (Same for Commodities) and Amur Minerals (AMC), MONI

Good Morning,

If your house is going to be flooded and some rooms are cut off, you save possessions from the rooms you have access to. The exact same thing is happening on the Chinese markets as a result of further trading halts by companies. Traders or blind speculators are saving what they can, whilst the behemoth type stability funds buy large stocks directly or via ETF. 

FT China steps up efforts to halt stock market rout, and wider market are now reported what was widely known on the trading floor and here. The PBOC (People's Bank of China) funds are being utilised by the China Securities Finance Co. (CSF) (CSFP was previously used here but to keep in line with wider commentary the "P" has been dropped) to buy stocks direct in the market, as well as provide margin liquidity to brokerages. The total sum of the parts is approaching $140B, this should be called another form of QE.

On the one hand you have oil dropping, but perversely PetroChina is breaking ranks and staging a bull-run of legendary proportions. Tacking on near 25% price appreciation as the "stability" band aid funds buy less risky investments. So as a trader, you'd sell anything that isn't being bought and buy what the Government/Funds are buying, or run for the hills? 

With promises of improved margin and the like, the rule of 5% short is near non-existent. Li cannot get a short on for love nor money, with technical problems and various other 'reasons'. The Government is attempting to stop any form of selling, from suspension to undertakings from large brokerages (24 now) not to sell. 

Well some are adhering to the no-sales-agreement, but limited time to explain what is happening on “opening", for which followers should check. Simply, China collectively buys stocks the herd are running to the door with, the likes of Yeast Angel and then post lunch the price tanks as the buyers disappear but it’s not 8% down, only say 4%. That's if the entire market isn't in a trading halt by the end of the week. 

There's a number of brokers that have serious liquidity problems. Some of those were "told off" for excessively lending and rolling over positions only 7 months ago. The gossip is they've blown up (financially a la CHF) because clients are unable to liquidate positions that may have been in profit, because they're suspended and are unable to cover serious losses. Until the brokerages have been able to access emergency margin provisions put in place by the CSF, 'traders' accounts' will remain suspended. Another win for the policy makers, limiting sales!

Yesterday, with safe havens been sort in the west in light of China and the EU boil that needs lancing, Greece. Silver was surprisingly weak, the obvious shall occur for those leveraged silver producers we love to kick on weakness (HOC/FRES). The same for gold, with a modest bounce well below what was expected. 

It looks like American Futures traders have such large positions (short) that any headwind of buying is wiped out. The decimation caused by the over-speculation a few years back, has left the gold market unbalanced. Some traders committed such levels of $ in 2012/13 that the thought of speculating long has left the market void. 

The last time the mint ran out of Silver in November 2014, the price spiked near 20% over three months, the same happened yesterday. The difference being the entire absence of Chinese speculators in commodities, the “bears” will have this market for longer. The Chinese cashed in significant positions this week, no doubt as their margin was squeezed in the equity positions, liquidating positions in Nickel, Silver, Iron Ore, Tin and pretty much all commodities. 

The prime example being Nickel, where the Chinese are happy to accept near physical spot prices, with limited futures trading the price fell through the $5/lb support like a brick. Same for Iron Ore, price setting iron ore outside of the market at $45/t well below the market $49/t. With the usual suspects, Rio Tinto (RIO), BHP Billiton (BLT) and Fortescue Metals Group (FMG) all taking a kicking. 

FMG is entirely absent of any support for obvious reasons, being the higher cost producer of the majors. At AU$1.67 a share the $2 support is but mere history, with $1 a share likely, but wisdom dictates to take profits. One hopes those Atlas Iron holders don't hug this stock through the pain, although riskier for the bears with the possibility of event risk.

For those with a memory on this Wednesday morning, Rio is only 240 pence off the 12 month target of 2200 pence, with most Companies tapering back their assumptions / targets to circa 2800-3000 it may just be still too much. It was Deutsche Bank at 4200 pence at the time that raised a few eyebrows a year ago. That case of wine will be thoroughly enjoy from a good sport whom accepts differing opinions are positive for the market. 

The above a complete validation for conviction short Amur Minerals (AMC). The company is still over-valued on all levels. Admittedly depreciating quicker than anticipated but far from complaining. The project is uneconomic and after yesterdays' fall, and the company is "perhaps" worth cash.  

This nicely brings us on to Monitise (MONI) whom are the unfortunate beneficiary of another selling shareholder. MONI inform us that they have been notified by Visa Europe...that it will reduce its shareholding over time while continuing to work with the Company throughout the duration of its current commercial agreement. Those holders in the stock will be used to a declining SP, so perhaps an opportunity to average down further and then hug the stock? Better still embrace the “2016 profit forecast!” Cash is king, and MONI burn it like no tomorrow and whether its profitable or not in 2016, the positive cashflow may not be! 

Some bizarre events on Aga Rangemaster (AGA) today...more later perhaps. With gossip of the deal being off...surely the company would have updated!?!

Atb Fraser

Morning Mumble: SHCOMP, A buffet of commodity woes (Short32) and the implications for Alumina Ltd, Rio's Coal, Hargreaves Services (HSP) and SXX the gamble.

Good Morning,

One may require a nice ice-tea or G&T in certain circumstances. 

Trading on the SHCOMP (Shanghai Stock Exchange Composite Index) was volatile, a plunge from opening of near 5% following by gains of some 10% from the low. Closing near the high for the day at 4,277.223. Margins and leverage appear to be the issue, with the drop being covered post the closing of positions. Has the Chinese Government saved the day? 

Remaining short on Amur Minerals (AMC) but also banking considerable profits, this company is over-priced for the stage it’s at, the cash it has, and the economic potential (or lack of) for the asset . Those following the wider story will note how logistics will become a nightmare and funding is of a scale, that even Sirius Minerals (SXX) with decent support and decent geopolitical headwinds, will still have to be very persuasive about.

AMC PEA (Preliminary Economic Assessment) / PFS (Pre-Feasibility Study) suggested the viability isn't for this time, especially as Nickel has limited to no support and volatile. Maybe in years to come, utilising a telescope and some hope for "guidance." The SRK guidance / consensus of future prices was based on a different climate around 8 years ago. The super-cycle may shift such a degree it becomes economic sooner than envisaged, but the odds are currently against that. 

Nickel is currently trading $5.2231-$5.2345/lb and has been as low as $5.11-14/lb overnight. Those aware of the position of Nickel will not be surprised by the moves over the past week. Concerns regarding the limited growth in the very sectors that are the highest users of Nickel. Watch the $5:08/lb.

For those, including some analysts that have a wish to improve their understanding of the sector (present company included), consider the Nickel Institute (Materials and uses), for a brief helicopter view of the commodity. Often giving a better understanding of the market than covering it with "linked to steel demand." Not the greatest month either for South 32 whose woes despite being Short32 are increasing as commodities take a further hit. 

South 32's (S32/Short32) 'portfolio' of assets produce alumina with the Chinese prices still falling and the Australian prices attempting to keep up, aluminium (sub key $0.80/lb at 0.76/lb), coal (enough said), manganese (anti-dumping investigation and sub critical $2 at $1.93/kg, nickel $5.23/lb), silver ($15.7/Oz.), lead (fairly consistent but trading at a crucial support level of 0.80/lb and zinc (consistent trend currently $0.92/lb). Life isn't too great for South32, although its one to play in any whiffs of recovery. 

The market is not ignorant to the Alumina downgrades across the sector, with producers "almost" scaling back production but never getting round to it. The poker face is in-danger of forcing the wheels off the higher leveraged players. The favoured pure play short is Alumina Ltd that mirrors the market woes. Playing the OTC (OTCMKTS: AWCMY) and ASX: AWC. In the absence of a recovery in both the ex-works price for alumina and such a swelling of inventory in the pacific, ASX: AWC will struggle with share support. 

With Mick Davis buying (possibly) Rio's coal assets (FT), the Yorkshire Post highlights the industry woes where the Hatfield Colliery is closing. This was expected, but the timing has been brought forward by a year or so. The government is unlikely to offer support despite it being tabled in the commons.

Mick's timing is likely to be very well orchestrated. Having sat on his hands and refused to pay anywhere near the expectations of the industry, could RIO's capex needs force their hands with their thermal coal operations. Alternatively, Mick could buy S32 once it's been giving a thorough kicking by the market for being "unfortunately" aligned to the downward cycle of commodities.  

Perhaps time to review Hargreaves Services (HSP), having closed again recently, with Net Assets Circa £150M and net debt around £20M. The company is now priced towards the top end of any valuation, but more than likely nearing the bottom than of this massive drop. With the sentiment in the coal sector and the decision by major investors/funds to avoid any exposure, the stocks have been punished. 

Yesterday was the last opportunity to dump the warrants in Sirius Minerals (SXX) ahead of the committee meeting today. With the stock suspended today awaiting the announcement it's D-Day. With the no person wishing to appear the guilty party, from a psychological perspective on is betting on a deferral to the Secretary of State. 

Having taken profit the outcome is immaterial, the speculators have scope for considerable gains but not without risks. 3 pence circa on refusal. 5 pence on deferral, 38 pence on approval (guesstimates). With an 85% probability of approval/deferral, it shall be interesting! 

The eyes are on Gold at the moment for a place of safety. With dwindling demand and reducing supply in the current climate, it’s that favourite sport of kick the higher cost producers. Tungsten's brief recovery has ended with a damp squid at $217/MTU.

No time to fully cover Obtala Resources' (OBT) final results, with the over-expectation becoming a disappointing reality with this stock, expect further selling after a period of hope. Returns and cashflow are key and in the absence of guidance of earnings, revenues any speculation is limited to hope. Perhaps one for those brave folk that can convince themselves the returns on assets of circa £100M are favourable. Quite how investors are meant to buy a stock with little guidance for an agricultural business also in timber? 

Atb Fraser

Morning Mumble: REM's Desperation & Writedowns lost in the GLEN. Copper Gossip & Spain 2.0.

Good Morning, 

Markets tend to be more confident in the UK as it shrugs of its seasonal affective disorder to start the spring afresh, but not for long! It was yesterday the supreme chartists (exc. Hugo) are now calling for a FTSE 100 retrace to near 4000. To quote Hugo, as it's unusual for him to be consider the FTSE, if there was a retrace it would be circa 5100, nowhere near the 4000 being bandied around. 

REM (Rare Earth Minerals) appear desperate to get above 20% before any such EGM at Bacanora Minerals (BCN). LGO don't have the necessary cash to remove the issue of a vote for the appointment of a Director to the board. The question should be, how much cash do REM have left? No much is the answer…

Having spoken to a few savvy investors in BCN it's unlikely that David Lenigas will achieve the intentions via REM without 20%+ direct holding. All holders should be thanking REM for creating a large illiquid squeeze (do not blame shorters as they were near nil or should have been!) in the stock with the price near doubling. This does not mean they should vote REM or any associates on to the board, far from it in fact.

Glencore's (GLEN) preliminary results 2014 in EMC's view should have taken a huge hit on thermal coal.  The carrying values have warp the overall figures to give a false sense of security for an improvement in the dividend, up 9% today. Viterra saved GLEN from dismal results, debt reductions of circa $5.2b will aided those with myopia and the savings from the incorporation of crap from XTA (Xstrata) are just mystifying. Although when one unwinds the debt, it’s worth noting the sole reduction was down to Las Bambas sale. Had the 'synergies' and CAPEX reductions be substantial enough, the level of debt paid down would have been circa $6.4B and potentially nearer $7b. (Time for a picture, it's dire!) 

The preliminary snapshot sums GLEN up, but doesn't give the whole picture. The market should have been selling into these results. They are dire if you add in coal and the return on shareholder funds, laughable. Roger Bade goes with 4.2% return on shareholder funds. 

Its ironic BLT (BHP Billiton) achieved better than GLEN despite having Short32 to get people's mouths watering. Although, with GLEN's trading division and the level of capital intensity required you'd be a fool to expect the same metrics as Rio/BLT and dare I say it Vale, whom have their own issues.

Roger asks some very good questions about the reasoning or underlying issues within GLEN regarding fees, commissions and pay. Perhaps GLEN was more suited as an unlisted anomaly. Well not for the sellers! It’s very hard to justify a valuation above 265 pence for GLEN, and that's pushing it. So over to the analysts to maintain the status quo with targets of 330-360 pence, obviously not for their own money though!

Analysts are left guessing where GLEN will cut its CAPEX. We'll leave the summary to GLEN, "Responding to the volatile market backdrop, we comprehensively reviewed the appropriate level of capex for 2015. Originally guided to $7.9 billion, we now expect 2015 total industrial capex to be in the $6.5-$6.8 billion range, with reduced spend across the broad portfolio." Coal? Oil? Alternatively OPEX? Marketing? Perhaps more transparency on the marketing fees and 'associated' costs? 

Of course we should end the GLEN commentary on a high note with the largest LMI (Lonmin) short...the in-specie distribution. How has the stock performed since GLEN's in-specie announcement 11 Feb 2015? Those two analysts in RSA (Republic of South Africa) that thought it would be good for liquidity, with a TP or near 240! 

With Mugabe's 91st Celebrations being in the headlines, Mwana Africa (MWA) managed to raise $20M via a bond issue for the smelter restart from ZIM institutionals. One hopes MWA have checked the lead times for the equipment they need in for the smelter reopening in 9 months’ time. 

There's a guaranteed uncertainty coming to the politics of Zimbabwe. It would be sensible to consider this with any investment, irrespective of the benefits of the commodity (namely Nickel). ZANU PF (The Zimbabwe African National Union – Patriotic Front) are in turmoil about who takes over...Even the MDC-T (Movement for Democratic Change) are becoming soft in their old age and wanting to maintain the status quo of ZANU PF, lip-service objections?

Copper gossip via Li in China, Zambia are alleged to be reviewing the overall tax-rate for open-pit mining that has impacted copper production and sentiment on any investments there. After initial discussions with the operators, Zambia are alleged to be reviewing the 20% royalty rate to 12-14%, although ahead of the previous 6% welcomed by the miners. 

Zambia have risked their entire industry in the short-term with the revisions to the Zambian corporate tax and mining royalty regime. With First Quantum's Sentinel mine coming on stream, they have had to revert to their lenders to tweak their covenants. The 12% for Vedanta is still far from positive, and creates risks, despite a recovery in the copper price (currently 2.66/lb)

With Zambia appearing to want to play a hard line on taxation (at least at the moment) Vedanta (VED) is at real risk of being the casualty. Its capital and corporate structure drastically need simplifying/clarifying in order to survive, VED appear have got ahead of itself in the price recovery. 

A few super-yachts cancelled today?

Atb Fraser

PM Bolt On: Normality resumes with oil and the swallows have left with China needing Growth support, cutting reserve ratios. Vale, APF, X2, Largo Resources...

Good Evening,

In my absence the market been in denial. The assumptions on capex is that there will be a reduction in supply. So the market intelligence focused on the drilling rig count than the supply. Inventories were up and more than the consensus thought. Perhaps the consensus needs some educating with their inability to read the obvious. No wonder the myopic speculation became negative/nervous with Brent and WTI today and ran for the hills. A few fingers were burnt in there today and wrongful assumptions about strikes...you have been warned!

Struggling economies are under the cosh with reduced oil revenues and a weaker currency the infighting is already occurring. It may pay those bottom feeders to consider Turkey for the annual hols. With the interest rate being the main enticement to the Turkish Lira (₺), and the Central Bank under significant pressure the currency(ies) are going to be volatile. 

Record iron ore capacity was announced coming out of Western Australia, it's a wonder who the casualties are. The minnows we know but there will be some rights issues on Indian producers with prices set lower than the international market. Add into the mix the pressure from Russian operators with the currency advantage it’s not looking positive. Its been known on the shop-floor in China, but ignored by the analysts, that Steel Mills are more willing to adopted the "just in time" approach for purchases. The price is going to be stressed unless further stimulus is announced as the Chinese become savvy at stock management; evidenced by the port inventory declines. 

Mick Davies's X2 Resources (X2) may come to Vale's assistance by purchasing some of their Nickel assets including Sudbury Ontario (population significantly reliant on Vale's nickel). Vale would like a partner for their Nickel ops, but what price is realistic at these prices? X2 are now rumoured to be finding some debt to fund a 'certain' acquisition. Who what when isn't the question...we know what's available it's a question of timing.

The other day EMC got "almost" positive on Anglo Pacific (APF), and today, there's a proposed acquisition and placing. How this placing got away as they also announced reduction in dividend by 40% and they forget to mention that Largo Resources (TSX: LGO) (Vanadium pure play) with Iron ore credits (or lack of) helping to miss all targets, costs and we'll assume the debt can be refinanced. 

Largo's cost issues alone live little room for error. APF are interested in a 2% Royalty on, with targets missed. Thanks to Roger Bade for pointing but, once confirmed, one might need some smelling salts if you continue to hold. As discussed on EMC Largo Resources and here (Afren Favourable result & Largo Resources (Maracás).

Atb Fraser

Morning Mumble: Viability & Pricing (CEY) & Dreamland Horizonte Minerals (HZM)

Centamin presented an opportunity to walk in light of the price movement, I'd be surprised if people can warrant a higher target price save for the takeover rumours etc...bizarrely the price stepped up 10% (or near it). Well the market likes the odd blinker...to ignore the issues.

Horizonte Minerals, A stock I've had a few plays with over time, has published its Pre-Feasibility Study (PFS) that confirms economic and technical viability for Araguaia Nickel Project, Brazil. Now I hope you note my sarcasm here, but anything is viable on paper if you factor in "better anticipation and expectation" in the market place.

You read through it, like me, I won't try and pretend to understand the more complicated "schpeel," but what I do know is there are 2204.62 lbs in a tonne, and that makes my assessment easy! They're forecasting $19K/t a price that may well be achieved in the near future due to the Indonesian ban. However by the time the mine comes into production, its my view if the "ban" has not been modified, then its likely future supply will not be constricted. A ban by Indonesian currently and the price is range $7.2-$7.35/lb currently. You're thinking, this is the "PFS" there could be some modifications in the Bankable Feasibility Study, albeit HZM will need, ermmmm, cash for that part. 

When you balance it in, you should derive like I a Nickel price of 8.618265279277154$/lb. Sorry but you get the idea...it's only  modest $1.30/lb above the current price which I suspect will rise with further tightening of supplies around October. All positive, but all the same, I always thought you were meant to sell projects on past economics with "headroom" and cream for an increasing price. Am I wrong here?

Well with an average price over 20 years of say 15,000$/t or 6.803893641534596$/lb. I think I am being generous there, but guessing at the average without currently having access to the stats. You get the idea, its "only" 19% above the 20 year average, admittedly things have changed and it has peaked before at $53,000/t or just over $24/lb there's potential but at least be conservative with the pricing and expectations.

For the HZM holders, with the larger shareholders having 75% of the stock it'll be down to them to determine viability. Assuming one doesn't have rose tinted glassed they'll look for improvements in these economics at the BFS stage. Assuming they decide to go that way and not spin the project out to someone with deeper pockets at say 12pence a share "to keep some happy."

One of the mysteries in the market I have to say, assuming that all things remain equal there would be more upside in a Nickel long than there would be in HZM post a rise to 9p. Rather simplistic approach from myself but that's how I work.

ABM on the bank and just waiting to be clubbed by Creditors it would appear: Albermarle & Bond (ABM) Update on discussions with lenders. One begs to question what sort of discussions there were/are in light of the response: the lender "will not be able to support the management turnaround plan for the business The Board is continuing to work with the Company's lenders on possible alternative options for stakeholders."

So shareholders, pay up, or 'new shareholder' pay up and discount all the way. One thing is for certain, the leveraged model across the entire market whether it be Gold, Silver, Nickel (TALV) etc...does not work for parties thinking or considering it to be low risk. However it's positive for the press. They have been able to retrospectively write about what "was clearly and matter-of-factly" coming. 

Faroe Petroleum PLC Preliminary Results had a tone of consolidation. Perhaps the market will follow suit: Financially, with the positives coming for the company and development results should grow. There Net Cash situation is certainly a benefit and prudently (so far) spent and reserves being upgraded. The key to for me is the RBL (Reserves Based Lending) not burning a hole in their pocket and one will assume that will be prudently spent!

My long (Leggie sit down) on Kingfisher paid well, it’s a rarity for myself to go into results with full exposure. Kingfisherreports full year adjusted* pre-tax profits up 4.1% to £744 million and the markets somewhat surprised by the capital return programme. It boded well for the SP, for myself the longs are banked, purely as I do like to run a sensible operating rule of making a profit! One will await the ‘consensus’ before taking further positions, long or short…

Atb Fraser