Morning Mumble: Hiatuses and...Ken's Mare (KMR) Equity for shareholders? Anglo + De Beers, Glencore and some news about a former Jam Tomorrow Employee Rurelec & Questions for their NOMAD.

Good Morning,

Very busy - although amusingly, there were suggestions we had visited the dark side and started working for a long-only fund! Chance for a recap later this week on the pertinent issues from the 22 November to present, although nothing much has changed, save for news driven events.

Iluka Resources sensibly announced the long-awaited termination of discussions with Kenmare Resources (KMR) - it’s wise for parties to read the RNS. Those followers will be unsurprised by this "news.” 

KMR equity holders have the opportunity to participate in the dreams of the future. So to sugar-coat the dire state of the KMR’s financial position they have announced plans for an investment by State General Reserve Fund (SGRF), a further capital raising, and balance sheet restructuring

Over to KMR (bold, italics and underlining are additions):-

SGRF, a sovereign wealth fund of the Sultanate of Oman, has approved in principle an investment of US$100 million in the firm placing via one of its subsidiaries, subject to and conditional upon, inter alia, agreement of a subscription agreement, agreement of arrangements with the Group's project lenders on the Group's capital structure, procurement of commitments from other shareholders in respect of an additional minimum US$75 million capital, necessary Kenmare shareholder approvals, and finalisation of a prospectus.

Wait….continue reading:

Moma is a world-class asset that encompasses a large, long life ore body. Total invested capital exceeds US$1.2 billion, with the mine producing more than 7% of global TiO2 feedstock supply - being the largest merchant producer of ilmenite globally.

Having invested capital that exceeds $1.2B, and producing 7% of global TiO2 feedstock, it would appear the management are going to hang around to run the next stage of the "KMR turnaround story/saga." This is despite being in charge whilst a transformation of a once multi-million pound company into a small cap with a £12M valuation took place. One has to wonder what the board’s remuneration and bonuses have been over the years in comparison to the returns for shareholders. 

The question that those supporting shareholders should ask is, “are the management right for the future?” If the past is an indicator of the future, prudence would be to have a fresh start with a clean sweep. Those whom played the KMR pub quiz last year on FTML, will no doubt be aware of the dire performance for shareholders.

What’s another $175M in the grand scheme of things? Will the prudential be putting up any ‘wonga’ into the fundraiser? More to the point, is $175M enough?

There remain a number of material matters that need to be agreed to enable Kenmare to deliver the planned capital raising and there can be no certainty at this time that they will be achieved. Kenmare welcomes the indicated support from SGRF and appreciates the support of key shareholders.

We’ll watch from a distance, although if one was short, prudence would suggest closing on the news today. KMR Net Debt must be around $315-332M by EMC estimates.

Continuing with a theme of shareholder value and with some amusement for those following the debacle at LGO Energy. Judging by the latest announcement they’re off to find and/or recognise shareholder value with  a strategic review. 

LGO also update the market on the Trinity Exploration no-deal on the Tabaquite Block by issuing 41,487,776 to Trinity Exploration. Trinity’s statement on Tabaquite Block, Trinidad ends with: 

The decision to cancel the SPA has been considered as part of management's overall assessment of means to better realise the value and future potential of the Tabaquite Block. 

  

We have Glencore (GLEN) updating the market this Thursday. NH and David Sheppard at the FT ran with something a bit more positive, “Glencoreexpects to cut debt ahead of schedule.” - Sensible and common-sense discussion about GLEN's earnings forecasts in the current environment. Pay attention to the terminology used on Thursday, one suspects there may be a few statements coming from the back foot.

Sadly for GLEN's workers Collinsville coal mine in north Queensland, 180 workers are to lose their jobs. Is this an admission of the dire state of the coal industry? It certainly explains why Mick Davis is taking his time with X2 Resources, perhaps to Rio's annoyance. 

In the weekend press we had Anglo American allegedly slashing their dividend (again and again), talk about echoes – news must be thin on the ground! Anglo’s investors’ day tomorrow (08th Dec). We can no doubt look forward to all the positives of a diversified miner and what this offers investors, whilst struggling with depressed pricing.

With Anglo’s subsidiaries either under water in terms of operational costs (Kumba Iron Ore/De Beers), lacking flexibility in CAPEX (Minas Rio) or needing to deleverage the balance sheet. The future doesn't look rosy. Anglo is now realising the hard choices it has to make and the limited flexibility. Quite why they have not pressed the equity raise/capital injection button is anyone’s guess. Surely they'll want to get in there before all the others?

We note that De Beers have sold Kimberley Mines in South Africa to Petra Diamonds and Ekapa Mining for a rather low sum. If one looks at the capital De Beers spent on Kimberly and the plant etc…it gives a rather good indication of the amount pressure to monetise what assets they have/can sell.  An article from May 2015, makes for an interesting read… Engineering News - De Beers inviting bids for life-extending takeover of Kimberley Mines. Was the USD to South African Rand/ZAR near $1:ZAR5 in 2002/3?

For those that have followed a company Rurelec that we consider jam tomorrow, its not often one gets validated in their views so quickly. Over the weekend attention was drawn to the following announcement on Independent Power Corporation PLC.  See the previous commentary here (EMC) when the IPC was "spun out" or Rurelec to allegedly save costs.

Questions:

a)      When did the Independent Power Corporation PLC, Peter Earl and Anglo Kazakh TransAsian Pipeline Corporation Limited commence discussions? We may be able to update on this shortly...

b)      Was this before or after the spin off?

c)       Was the NOMAD consulted on the “spin-off?”

See the original announcement and terminology 19^th June 2015 - Director Change (Peter Earl) leaving & IPC. Then see the replacement, Spinout of Subsidiary. Albeit it’s somewhat immaterial as the horse has already bolted.

Atb Fraser.

Morning Mumble: Anglo American's (AAL) woes, Patagonia Gold (PGD) and yet more SRX Jam

Good Morning,

Anglo American (AAL) have a growing discontent, with the strikes being declared by Anglo as wildcat. Despite them allegedly not going through the proper channels Anglo are speaking 'with the powers at be.' The starting rate of 6000 Rand a month, is the bone of contention, well the tip of the iceberg. Post any resolution, we can expect the time served miners to strike because their premium for experience and skills is now under-represented in their pay-packets. 

AAL, will of course open dialogue to discuss the miners woes, having recently agreed wage deals in June 2014, its unlikely there will be a deviation from the deal agreed. BHP Billiton (BLT) and Rio Tinto (RIO), although not as connected with the South Africa issues (excluding Short32), on the coal face and mine pits in Australia there's also a disharmony. With strikes unlikely at the moment in Australia, longer term BLT and RIO are at risk of being held to ransom by their employees. 

BLT have recently recommended to the Productivity Commission to limit industrial action to specific events, allegedly on safety grounds. The Unions of the contractors and workers are starting to feel their corporate parent isn't behaving appropriately.

Patagonia Gold (PGD) announced results today, unlike most with an unrealistic expectation of a profit. PGD have made a decent headway in covering their costs, when all things are considered, this could just be the start of the turn for PGD. It’s rare to get excited about potential, but PGD might just be a favoured minnow of a gold play. The caveat being, it depends on how much money they sink into proving up the 'currently' uneconomic proposed heap leach at Cap-Oeste. Simply put, in the absence of a significant increase in the oxide resources, any proposals are not viable a gold prices below $2,100/oz. and sub $24/oz. silver. 

It was a pleasure to be part of the thundering troop (poor I know) of Horse Hill today for a not so untidy profit in a few hours and out again. With continued news to come, surely there won't be further fundraisers. Please don't forget the sarcasm, but more importantly, is there a leak yet again! We won't comment either on the 5% divestment made by a certain mining company either, where the timing was poor to insulting. 

Had there been time yesterday it was intended to comment on Tech Metals Research which is turning into the place to go for Rare Earth Metals commentary. Some good analysis and a decent place to start, one broker could do well to spend some continual professional development time on the internet rather than getting his metals so confused. 

Little time to cover Sierra Rutile (SRX)'s Q1 results in-depth. With some positive hedging in fuel costs, but one must take the opportunity to remind the market, it's essential for a company (especially SRX) to sell the products they produce, please note their costs (as eluded to by EMC). It's pointless producing a produce/ore without sales. 

The TiO2 market is in the crapper as SRX states, any improvements are likely to be, "tempered by forced sales from certain distressed TiO2 feedstock producers that continue to undermine price improvements." It’s prudent at this stage to reiterate the view of EMC's from March. Until any decent recovery in TiO2 (Titanium dioxide to you), there is no reason whatsoever to hold SRX. If one was to be forced to throw a dart, it's difficult to find any value about 10.75 pence and that could just be too generous. 

Atb Fraser