Morning Mumble: Sirius Minerals NYMNPA, Platech's cashbox placing & clever play and Anglo's Sherlock Award + Paragon Diamonds "share buyback!"

Good Morning,

Its rather bemusing that the market expected the planning officers report to do anything bar go against the grain and recommend anything! In summary, 

• Officers' policy conclusion is that they do not believe the development represents exceptional circumstances and that the economic benefits and mitigation/compensation do not outweigh the harm caused.

• Officers acknowledge the high level of mitigations, the significance of the economic and social benefits which could attain national significance and the very strong local support.

• Special Planning Committee to meet, as previously announced, on 30 June 2015 to determine the application.

The full report is available: NYMNPA Special Planning Committee Report (PDF). Anyone that did not derisk significantly really needs to consider their approach. With no recommendation, it’s down to the planning committee to determine the result. One suspects that the "no recommendation" is to avoid the potential legal implications of being pro-ante the project. Its down to the test for a ‘Major Development’ that is a key government policy. In the event of refusal, expect SXX to become representative of arbitration value, circa threepence. 

30th June beckons...where Members of the Authority will make a decision on the application, based on their own views of the planning balance, and have the option to resolve to approve, defer a decision or refuse the application. One suspects it will either be approve or deferral, refusal has significant consequences on a number of levels. 

Playtech (PTEC) have announced a placing that should be considered a cashbox and has only aided the short component in PTEC. With greater scrutiny over PTEC and analysis of its core business (including PLUS), PTEC's model needs cash. The commitment to buy PLUS is one of a binary nature, both shrewd and well-timed or simply, a stupid gamble where the product offering could have been replicated with a better perception of brand. 

As PLUS has had so many issues, its "plug and play" type model is now ruined (in regulated markets) expect some significant revisions and reconditioning on growth forecasts. With a vast amount of convertible loan notes/bonds in existence at circa £7.25 and the placing. Wonders would never cease if the placing was at the convertible price level?

PTEC holdings at 9.36% in PLUS. The market simply should price in the takeover happening now, as PTEC are merely saving themselves near 5% of the offer price in market. Clever? if it turns out a good buy not goodbye, time will tell. With 44.96% voting in favour now, they need a smidge over 5% to do the deal. Unfortunate for a few funds, some of which had the opportunity to avoid such a calamity. Alas, don't consider the amateurs knowing a thing or two!

Apparently, Anglo American (AAL) shareholders pressing for more cost savings, Investors press Anglo American chief executive for cost cuts. It’s taken a considerable length of time to realise the returns of 15% ROCE (Return on Capital Employed), are but a mere hope. One was in a quandary about whether to give the Sherlock Award to the company or the shareholders believing in the unachievable target, with the asset class, commodity price and OPEX costs. 

The performance to date suggests Mr Cutifani has over-suggested/promised in a backdrop of misery for asset sales and rationale of costs for a producer with little hope of cost savings in its current structure. Alternatively, it could have been much worse? Unlikely. It may have been safer for the Australian to stay at Ashanti Gold.

In the current climate it would be unwise to sell De Beers in the current cycle of diamonds. Having been in place for two years two months, it’s mystifying what has taken shareholders so long to realise what has not happened. 

The obvious has occurred, dire performance, coupled with the disposal of assets that are very unlikely to achieve anywhere near was is hoped or implied price. Anglo's other entities operate in a depressed market with the outlook clouded by contradictory data from China and slump in ore prices. 

Examples of sales, the Mantos Blancos and Mantoverde mines, as well as its 50.1% stakes in El Soldado mine, and the Chagres smelter have been slow. Its alleged Codelco have trumped X2's offer of $486M. Although unlikely as Codelco's natural fit is Chagres, with their smelter division and need to create value in their own offering/assets.  AAL (management) could just be forced to take fire sale prices to appease their shareholders. 

Other analysts and reporters suggest the Mantos Blancos and Mantoverde mines won't achieve anywhere near the $1B hoped and there's an offer by Glencore and X2 Resources around $500M. Any expectations of a value of near $1B save for some 'wannabe' conglomerate, are unlikely to become a reality. Although the wildcard goes to GKR Corporation, whom may come through as a strong contender, being well financed and having not completed a deal for near 12 months. 

GKR purchased the Navachab Gold Mine in Namibia from AngloGold Ashanti in June 14. Not necessarily the best timed purchase, and minor in the grand scheme of things. Mantos Blancos and Mantoverde mines, as well as its 50.1% stakes in El Soldado mine, may have economies of scale for GKR and certainly fit their remit. Over to the Qatari advisors!

Is the time right to buy Anglo? Perhaps as pressure mounts, although the South African issues cannot be ignored nor can the likely hit on the bottom line by divesting such assets into a separate entity. AAL must now be considering a perfume dowry of financing to cover up the quality of the South African assets and lack of returns.  Sound familiar? South32? Whom managed to obtain funding lower than Rio's! 

AAL is perhaps a buy as its near the target of 905 pence, being near or thereabouts, there's limited downside for the shorts, neutral perhaps or knife catcher. Certainly not short from now until further news. 

Paragon Diamonds (PRG) announced 'debt financing' to commence a share buyback programme and "to support short term working capital requirements" whilst the Company progresses the acquisition of the Mothae Diamond Project in Lesotho from Lucara Diamond Corporation (the “Mothae Acquisition”) which was announced on 5 May 2015. 

It begs the question of the sensibility of such an arrangement, when PRG are starved of cash and could only raise £130K in March. Over to International Triangle General Trading LLC whom control the shots. Perhaps its more to fund the flights to and from Lesotho whilst creating a squeeze in the stock to get another placing away post the Mothae acquisition? Who knows...in the absence of news, the price is about right. 

The cost of such a deal me simply outweighs the benefits to shareholders of a modest increase in SP, and one would be wise to factor in a few risks in this type of irrational corporate action. Surely if the company has prospects and potential the market will rate this on results "not" hopes. With the expense of borrowing, warrants and costs, why this was done now is bemusing!

Atb Fraser

Morning Mumble: Iofina (IOF), Diamonds, industry issues (stay awake) and another reason for Grexit to FLOW, VAT? KEFI's Placing and the Sherlock award!

Good Morning,

Iofina's (IOF) production update will no doubt be taken positive, the market should be wise to price in inventory levels and sales rather than "just production increases.” IOF has held circa $3-6M (the lower more recently) worth of inventory as a minimum over the past two years, the decline is also in light of the falling Iodine price.  

In the absence of an announcement of increased sales equal to or greater than today's announcement, expect the next set of results/accounts to show a near 30% increase in inventories. If one didn't know better, it smells of a fundraiser. Holders are reminded of the difference between production and sales, especially in a tight market with low prices and demand growth in the industry limited to circa 3.5%. Perhaps a push into the health market, assuming one doesn’t have certain rashes and thyroid issues.

It is International Diamond Week in Israel (well all two days of it) with the President of the World Federation of Diamond Bourses (WFDB) highlighting a few issues. With various concerns coming out of the conference, and positives. The main factors include:

• Over-grading (Rapaport Diamonds Magazine) by some labs that's caused an issue in reselling and confidence by the customer. Wonders will never cease, those ambulances will feel lonely with some legal practitioners diversifying See: lawsuit. 

• Conflicting diamonds, yes its still going on.

• Money-Laundering, something PLUS500 knows all too well about. Diamonds being highly portable, quite how the WFDB members deal with it is another matter. More so financing, with the formation of the Financial Action Task Force (FATF) back 1986 its still not cleaned the industry up. One suspects the absence of "mainstream" financiers as a result of the Antwerp Diamond Bank (ADB) closing, is compelling some dealers turn to the "non-mainstream lenders."

• The banks (of the ones left) want diamond companies that have traditionally been family owned, to adopt a more corporate structure. 

• Something diamond producers were slow to acknowledge was that lenders wanted diamantaires to put up more of their own capital. The 100% lending is long gone with the norm circa 50-70% pending on quality. Something De Beers expected in their new sales contracts (July 2014) and  EMC: July 2014 De Beers further strengthened in the sightholders and Accredited Buyers contracts including a greater transparency in financial reporting.

Over to ABNAmaro to assist the market, but more so find a structure other industry lenders would welcome and support, rather than maintain the opaque nature of the diamond market. Anyone for “Easy Diamonds plc” type venture, surely the market is crying out for such a well-funded entity in light of ADP disappearing and Dubai/UAE only filling some of the void. The bottom certainly looks near for the diamond industry with all their current woes, financing issues, over-grading and limited compliance with a sensible financial structure.

In a discussion about energy efficiency and far from embracing all things green, it was surprising to see FlowGroup’s (FLOW) model destroyed in one fell swoop by the EU. Does this mean the model is viable at all? It would appear that the VAT rate was the cream that meant the boiler would be able to pay for itself in the current lifespan of products?  Installation(read as profits) warning for FLOW.  

One hopes for the company that FLOW can reduce their costs sufficiently to enable the “'Boiler that pays for itself' model. However, the Government might have to step in with some form of subsidy. It’s noted that INSP (Inspirit Energy) have not commented on this, perhaps due to their target market being more commercial and exempt from the 5% means, there’s no material change?

Today is also the day that the EMC Google Alerts system evidences being a worthwhile addition to broker opinion and the Borg. It’s sensible to consider them even in your office. Having converted quite a few “professionals” to adapt from the all-seeing Borg (Bloomberg) by creating their own systems in conjunction with the Borg.

Having not taken a position personally, it’s a massive hat-tip to a small firm down that spotted this in their alerts and the implications ConstructionManager: U court: 5% VAT on energy-savings products is illegal,  FTEuropean court rules against low VAT for energy-saving equipment & Guardian:Households must pay higher VAT on insulation and solar panels, EU rules. The source being Google Alerts, although not quite turning to the dark side, they did manage to prevent significant losses. 

Imagine that, “yes sir, it was thanks to that public access portal (PAP) known as Google we managed to divest all your holding.” Perhaps Flow were tardy in their EU implications update to market with such material and significant public information?

This morning, on the belief that the Government will create direct subsidies (still permitted in the EU) rather than via VAT system, I have caught a knife (or not). It was tempting argument (risk) to buy into FLOW, albeit a small position. Expect an update from the Government due to the significance of this ruling on a growing and rather larger industry.

KEFI Minerals have completed a placing for £2.8M. (EMC:Plate Spinning & Cashflow April 2015). With AUSDrill International taking part in the placing, although small its giving an indication on who is looking to fund the project.  Admittedly AUSDrill have their own woes, AU$400M of debt, declining revenues and available cash of AU$62.7M. AUSDrill’s share price has been a proverbial ski-slope and in the absence of some decent deals, holders will no-doubt be impatient. Kefi will need more cash in due course.

It would be positive if W Resources (WRES) LaParrilla Definition Study actually had put up some pricing assumptions in their announcement. WRES have either cleverly or stupidly prevented any analysis being possible.

If one was to factor in today’s price for Tungsten and Tin ($235/mtu and Tin $14425.00/t), the IRR drops significantly to circa 36-41% (fag packet and quick). The economics simply don’t stack up for the FTM (Fast Track Mine) when for a modest increase of $30M on the initial $16M (total $46) WRES can increase production near 4 fold. Equity requirement would be circa $15-20M.

With WRES keeping the lights on with VAT refunds (€388k is expected in Q3), expect a placing soon. No wonder the price dropped on the news, if one cannot be bothered to inform their holders of pricing assumptions when announcing “good news” don’t expect the holders to get carried away. If WRES (Broker(s)) want to get a decent sized fundraiser to develop the asset they’re going to have to do significantly better than today’s announcement.

An award of sorts goes to Metminco (MNC). They have realised sieving the beaches may have produced better results than their original cut-off grade of 0.15% for copper, even as an open-pit operation. Today’s cut-off grade increase to 0.5% Cu should make the punters realise the woeful inadequacy in even attempting to utilise 0.15% as a cut off. With the Sherlock award going to them for pointing out that operating and capital costs will be significantly lower mining higher grades. Shocking Sherlock.

Sound Oil's initialannouncement read as plug and abandon, today we have confirmation of that.  

Finally, something as promised EMC:Dispatches and Dispatches:Supermarket Wars. Something worth a consideration for those long-only supermarket investors.

Atb Fraser