Weekend: A quick run through...'onest guv' (Coffee) - Sirius Minerals (SXX), Vale, BHP Billiton (BLT) - Dividend Cuts, Anglo American (AAL) , Kaz Minerals, Drax (DRX), Clarkson (CKN), Royal Mail (RMG) SunEdison (SUNE) & Finally JMAT

Good Afternoon,

Another manic week with various bits of news coming out - a speedy run through of what can be remembered:

Sirius Minerals (SXX) - It would be laughable if it wasn't true - from memory Israel Chemical (NYSE: ICL) via Cleveland Potash Boulby Mine raised concerns/objections regarding the application or process for SXX's York Potash polyhalite mine. 

ICL inform the market of the refocusing at the Boulby Mine and will mine polyhalite. With some amusement, ICL have trademarked a brand called Polysulphate – amazingly derived from polyhalite. ICL is listed NYSE and with limited upside, what reasons are their to hold the stock.

Vale / BHP - The trade was the debt at Samarco owned by Vale and BHP Billiton (BLT) - They have been compelled to undertake further emergency tailings dam work. The damage and overall cost implications are unknown although perhaps affordable, the market now should price in a real cut to BLT's dividend. The price has risks...even for Vale, whose leverage is phenomenal but the price is now about right. How will one sleep at night not being short Vale?

South32 (Short32/S32) – updated the market. The same however cannot be said for Anglo American (AAL). AAL own 40% of the venture where they have yet to notify their shareholders of Samancor manganese joint venture issues.  Anglo deem it appropriate to update on the changes to their senior management and ignore the woes of their 40% stake in SamancorCR. 

From South32, the joint venture's South African mines will remain closed until the completion of the ongoing strategic review. Production was suspended following a fatality at the Mamatwan mine on 2 November 2015. 

SunEdison (NYSE: SUNE) - The idea of SUNE being a car-wreck was pooh-poohed when we raised the question "why was SUNE valued near the same as Solarcity?” Our view was that there was limited equity value left for shareholders in SunEdison. In contrast others believed in the solar expansion of the world. 

The markets may be right about solar longer-term, but not with SUNE - they expanded fast, attempted to hold on to projects rather than sell them and have significant leveraged. It's an all too familiar story of elastic expansion that may not snap, but is likely to be a shadow of its former self. 

Despite some inference we had lost the plot in June, July and August, we were vilified by the price action on Friday where SUNE's ability to access capital and outlook has finally been realised. The price still is unappealing but there's no reason to hold the stock unless a white knight can be found. We know it's not Blackstone, they came out and said they weren't considering it on Wednesday (Reuters). 

SUNE's second quarter results released in August only confirmed what the market should have acknowledged debt vs earnings and over-expansion is a recipe for...What are the implications for the yieldco's? Another over-expansion similar to the Chinese co's of yesteryear. 

Barrick Gold (NYSE: ABX) continues to flogs four mines to continue reducing debt. It makes one wonder why they bothered in the first place - See Mining.com Barrick Gold. Their need for cash is keeping the short-interest happy in Acacia Mining (ACA) - from memory ABX still have 64% in ACA and with the significant overhang, would you be a buyer?

Lucara Diamonds in Canada (TSX: LUC) - not only found 1111 Carat Diamond where the share price was muted but then LUC recovered two more diamonds including a 813CT stone. We missed the price action due to travels but what took the market so long to react positively?! Certain traders...tut tut. 

Anglo Pacific (APF) - companies apparently have efficient with their IR - last weekend we had reports in the press that Rio Tinto were threatening to close their Kestrel operationsdown if they did not get approval for Kestrel. APF, by the silence, obviously do not consider the ground water issues in Australia significant enough to update the market on the future prospects of Kestrel. Perhaps the market will be honoured of an update within the Q3's due 26th November 2015 this week coming. 

Kaz Minerals (KAZ) - luckily for them they have a Chinese contractor whom appears to be very flexible. KAZ have been granted a reprieve with some can kicking of liabilities by Non Ferrous China (NFC). Over to KAZ, (bold and italics are additions):

Under the revised terms, $300 million of construction costs which were scheduled to be paid in 2016 and 2017 will be settled in the first half of 2018. There is no change to the overall amount payable to NFC or the project budget of $2.3 billion. Aktogay remains on track to commence production from oxide ore in 2015 and production from sulphide ore in 2017.

Oleg Novachuk, Chief Executive, said: "The deferral of $300 million to 2018 provides KAZ Minerals with additional liquidity during the construction and ramp up of Bozshakol and Aktogay. This agreement also demonstrates the strength of our relationship with NFC and continues our strong track record of securing support from our partners in China for these strategically important copper projects."

We maybe have a different understanding of the term additional liquidity to others, however the directors think it's a positive - John Mackenzie bought 5000 shares, Andrew Southam purchased 99,238 shares and Simon Heale (and connected parties) purchased 77655 shares. Perhaps they feel the purchases will be beneficial and a sign of a recovery in their company - hmm What additional liquidity is there?!?!

Coal - The UK Government came out with all coal power stations Technica - coal power plants to close 2025. This doesn't bode well for the industry as a whole nor prices where similar policies are impacted on global prices. Mick Davis / X2 might just be better suited to other projects, but one suspects they smell a bargain on some Australian assets. 

Are Drax (DRX) viable? With risks associated with their subsidies and the general outlook to biomass. Having met with a few private companies recently involved with ports, the outlook certainly isn't encouraging with some owners looking to sell. Implications for HSP (Hargreaves Services), albeit it should be cash generative even allowing for RedCar Steel closures. What is the read across to Associated British Ports and Clarkson's (CKN) etc....etc...

Cliffs Natural Resources (NYSE: CLF) - continued with their views on dumping in the US by China as well as announcing they are temporarily idling iron ore pellet production at its Northshore Mining operation in Minnesota by Dec. 1, 2015. Another company where this is no reason to hold the stock until anti-dumping measures are enforced. One suspects there's others issues at stake so it's going to take longer than the companies under pressure hope for. 

Royal Mail (RMG) - came out with better than expected results. The sector outlook remains competitive and consider RMG, in the absence of significant change, to be a dinosaur. The industry, like most sectors,  is cannibalising their own margins in the search for dominance. Not specifically aimed mail and courier companies - but there appears to be a thirst for expanding into space at the cost of all. See DX Group (DX.) trading update and UK Mail (UKM) half yearly report whom both showed the competitive nature of the market.

Johnson Matthey (JMAT) – Interim results were undoubtedly better with the added bonus of further savings (£30M). The news from JMAT’s Emission Control Technologies division (ECT) was waited for. There have been few/little indicators of how well the diesel market was performing after the current VW issues (whom just increased the number of cars with emission woes).  Our belief that the diesel demand would fall has so far proven incorrect with Europe doing well – more so it appears to be expanding.

There has been continued commentary around NOx emissions from diesel vehicles and speculation as to whether diesel's share of production in Europe may decline.  The proportion of diesel vehicles produced in Western Europe was stable at 51% in our first half (H1 2014/15 50%).

We did not properly consider that lower PGM prices would be so beneficial to the working capital levels.  Nor the true read across from the NOx issues that are a hot topic as a result of VW’s actions. JMAT, like Umicore (EBR: UMI), informs us that 6B + NOx requires additional catalyst technology and increases sales per vehicle for Johnson Matthey by around 20%.

JMAT's Dividends will be hugged in a shrinking market. (bold italics addition) - An interim dividend of 19.5 pence per ordinary share has been proposed by the board which will be paid on 2nd February 2016 to shareholders on the register at the close of business on 8th January 2016.  

The estimated amount to be paid is £39.6 million and has not been recognised in these accounts. The board is also recommending a special dividend to shareholders of 150.0 pence per ordinary share which will be paid on 2nd February 2016. JMAT could have utilised the sale proceeds better, one would hope they’re in the process of one or two acquisitions before the 2nd February.

Have a good weekend, Atb Fraser

PM Bolt-On: SABMiller, Commodities: Iron Ore & Base Metals - China & Glencore's coal neighbour + a little bling! + DOM, CWD & Majestic Wine's realities!

Good Evening,

There's significant demands on time at the moment, so apologies. 

Agreement has finally been reached between AB InBev and SABMiller. A rewarding trade for those going for the overnight 'thrill'. The discount to the £44 deal should not go unnoticed and evidencing how savage the arb market is ncurrently (BG included).

The benefits to Molson Coors (NYSE: TAP) should not be ignored but prudence dictates that profit taking would now be wise. 

Those longer term readers will remember Duncan Fox - who is no doubt relieved that the MegaBrew deal has been inked (*subject to regulatory approval). Duncan was  seen discussing SabMiller the other day (BBerg). Duncan can now look forward to the daily implications and sale of a stake in China Resources Snow Breweries.

In commodities there’s a growing trend that Europe are partially buying the story, the US consolidating it, but Asia are selling it (perhaps Asia is not in denial about the outlook). Iron ore has levelled around $54.5/t, but will not be assisted by the World Steel Short Range Outlook for 2015-2016. Worth a read, rather than taking the media reports.

The World Steel short range outlook factors in a number of assumptions that have yet to occur. Especially as a significant number of major projects are more than 50% complete and delays happening with new projects. All creating a hesitancy in opinion, it’s understandably difficult to measure the longer-term outlook without further flag waving stimulus from the Chinese Government.

Previously with any stimulation, there was a bias towards infrastructure, now with an emphasis on consumption, save for the Housing sector (the maintain stay), there could be a number of wild cards. Expect some focus on recycling, waste management and development of services.

What shouldn't be ignored are the indicators of increased inventories - sales not keeping a pace with production, exports down, imports down and pricing pressures evidencing the low factory gate prices. The only issue is...that's both in the US and China. It’s no wonder that FED rates are looking like they will be lower for longer. 

In Coal, there’s an inkling that a deal isn’t far off between Rio & X2 Resources. Rio's yearning to divest the Allied & Coal assets may, with X2 Resources willingness, have implications for Glencore’s margins. MickDavis (The Sydney Morning Herald), if the time is now, it may just put pressure on Glencore to merge the Australian asset with X2 being the operator.

The synergies are notable and Glencore must be kicking themselves that, save for a white knight, now lack the financial muscle to complete on the Rio deal. It’s ironic X2’s timing of a $2-3B deal, not only could imply the bottom of the market in coal/thermal coal, but more so strong arm Glencore into accepting a joint venture. Rio’s Bengalla sale to New Hope Coal (ASX: NHC) implies X2 would need to pay near $3B, but $2-3B is a sensible range.

Irrespective of such a coal deal, and Glencore's hopes a bull market in commodity prices, the reactions have been muted so far. Glencore’s newsflow continues unabated, and not always welcome, with Jim Chanos coming out and admitting he's "a potential purchaser."

It’s not the headlines that Glencore needed, as it shows Chanos’s is short the stock and highlights their woes. A brave call after such moves, but not without some sensibility in the statements.

The whole idea was if there was a downturn in the commodities markets the trading acumen would help offset the hard assets. It didn’t work that way. If that was the reason to put this thing together one has to question that strategy,” Chanos said.

Not forgetting that Glencore’s actions meant they’ve yet again gone into a corner where others are loathed to go. Remember Glencore attempted to shut in thermal coal production for a longer period and failed miserably. What happened to thermal prices when Glencore turned production back on? Down!

We are increasingly hearing of a drought in diamond financing at the moment, with Qatar being slow to finance new deals the prices are suffering (Idex Online). There is a possibility Qatar's financing options are limited at the moment. In part with the purchase of an agricultural business off Glencore (rumours) and taking a bath in a few stocks.

Retail demand appears subdued, but with contradictory news suggesting its more Global Emerging Markets than Western economies. Validated in part by the Alrosa and De Beers issues ref: Prices including allowing sight-holders to walk away from the tables. 

More to come on this in due course - worth considering why the need for the Dubai Diamond Exchange (DDE) to host a financing event. Is there going to be a recovery or more of a softer lander for prices? Alrosa's and De Beers' prices cuts will not have helped matters and the Russian currency gain is making any form of support difficult, with the Ruble/USD FX benefits.

With updates due soon from De Beers (Anglo American (AAL)), Alrosa MCX: ALRS, Rio Tinto (RIO), Dominion Diamond Corp (TSX/NYSE: DDC), Lucara Diamond Corp (TSX: LUC), Petra Diamonds (PDL) and Gem Diamonds (GEMD) – the market will obviously gain a better understanding of the situation.

Will Dominoes pizza (DOM) follow in the footsteps of Gregg's reporting and appreciate tomorrow? There's a lot of hope and expectation built in - with an early exit in the Rugby by England and the X factor / Strictly benefits losing appeal, will the pricing perception finally sink it? 

What justifies Countrywide's (CWD) premium rating? Not a lot...and looking more like a sell. With the capital markets day going down by certain preferred analysts like a damp squid, its getting hard to justify any premium to the valuation. 

And Finally, the market has awoken to the realities of Majestic Wines (MJW) yet again, with such headlines as Naked Wines Launches "Text for Wine" service, would you be long? No doubt some more consolidation due in the sector in due course. 

Atb Fraser

Apologies re: Grammar.