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

Morning Mumble: Dialight (DIA) almost cheery, Freeport-McMoran & Rio's Copper Confusion. The summer snow edition to finish on (with humour): RRL, AFPO's deal of the century & RRR? Phorm on Phorm

Good Morning,

In an admittance of just how bad things are, Dialight (DIA/DIRE) initiate a cost reductions. Having only sped through the RNS on the basis of having had the money and am unable to manage a position whilst on holiday, it’s surprising they haven't mentioned anything about their inventory. 

As a quick reminder, turnover up, cash down, profit down and in the absence of an effective cost management process, net debt is now around £10M. The market capitalisation is a smidge under £180M (550 pence/32.5M shares in issue). From previously having a modest dividend, this one has been torched. 

So today, they reduce the workforce near 12% (130 personnel) and incur a few costs as a result. Question being, what's taken so long to get to the consultation process? Are management so reactive to the company's position? We'll exclude save for Mr Sutsko from that having been in the position a short period of time. 

Why pay interest on debt when carrying inventory at levels near £36.5M, which raises the question of a goods/inventories impairment. We shall perhaps revisit Dialight post hols for a deeper look at these (date for diary October)...as there could just be some potential! 

Over to Dialight (bold is the addition,

Michael Sutsko, Group Chief Executive, said:

"I believe that we have a huge opportunity ahead and Dialight is well positioned to capture significant value in our rapidly growing markets. However, as sales continue to grow, the business has taken on excess costs which have resulted in our poor first half performance.

We firmly believe that our team can deliver continued growth with future resources being added in line with our strategy. This action is a key part of our plans to transform our business in the short term whilst realigning to deliver profitable growth going forward. As previously indicated, we will report back with the findings of our strategic review in October."

It’s confusing, the company didn't know its cost of sales went up disproportionately to revenue prior to Mr Sutsko's appointment? Finger on the pulse folks! This company may be in turnaround mode, but one has a suspicion there may be a requirement for some cash. The company reminded us they have significant headroom on banking covenants, maintaining financial flexibility, this maybe so, but there's also prudence. Leverage whilst struggling to maintain profits isn't always best, especially when carrying so much inventory as it's a road to ruin. 

We acknowledge the appointment of Michael Sutsko, who has only been in the hot seat 8 weeks, it’s certainly more than the board has done previously. Who'd have thought turning modestly positive, perhaps misguidedly on the hopes of a turnaround but time will tell. Mr Sutsko appears to have initiated more in 8 weeks than anything previously. This smacks of complacency on the part of the previous/current incumbents. 

One is finding it hard to balance the views within the copper industry, we have had FCX wanting to reduce higher cost production (Cost Reduction Plans for FCX), with further budget reductions in oil and gas already identified, albeit limited. Expect more in due course regarding their copper operations.

The problem is there appears to be a confusion/contradiction between what FCX are stating production cuts, to that of what Rio Tinto have inferred in terms of copper consensus and output (PDF Presentation and MP3 File of Presentation (both downloads and a must listen). Worth a note is the time of development including permitting to production around 40 mins circa in.

More is needed on this to go through the presentation including Rio's thoughts on Bauxite in Malaysia and Indonesia. Including the anomalies in Rio's costs, very similar to BHP Billiton's (BLT). Cost per tonne are circa $35-40/t, rely on the lower quoted in the results/presentation at your peril.

With enough depression in the commodities sector, Australia now get to debate the importance (or not) of Rio's assertions to expand Silvergrass. This has previously been delayed, so whether Rio are just teasing Twiggy (Andrew Forrest) or planning to ramp up a further 10mtpa. 

Interestingly, Rio mention in passing that Silvergrass is to maintain the quality of blended iron ore. Is the quality at Yandicoogina declining quicker than envisaged? Having expanded its current brownfield sites, Silvergrass's development might be needed sooner rather than later. 

As promised the summer ski edition, yesterday Range Resources (RRL) came up in conversation. Do people really "invest" in this company now? Today, they give a Trinidad update, having not had chance to follow this crap for some time, it was handy to be reminded of this EMC: Range Resources (December 2013). The chart makes for skiing and is a cautionary tale to all. Although they do assert they’re cashflow positive, at what level? At what stage does the market wake up and consider cashflow?

RRL may, it may not, who really cares? Save for some random event, its unlikely to get any more air time. Although as a positive, apparently the writing style and commentary here has allegedly improved...be your own judge!

Staying with the skiing theme, trending was African potash's COMESA deal (AFPO) with some humour that this will be the Glencore 2.0, it has certainly grabbed attention. Even Chemicals Technology picked up the story, so on to hopes of being an AIM Goliath. The perfect opportunity for those in the last placing to exit swiftly. Whether this deal amounts to significant cashflow is another matter, await terms etc...High risk punts aren't always bad, and there may just be life in the old dog yet. With a proverbial piste of a share chart since IPO. 

Maybe COMESA's customers lost the number of their current suppliers or had not considered conducting a cooperative tender process? COMESA has sought deals since 2012 at various levels. They've certainly improved agriculture, including the launch of the Regional Payment and Settlement System (REPSS). The cooperative approach and expansion of COMESA could just be the big-brother AFPO need. Sometimes it’s fun to be on a rollercoaster?

Whilst typing, one cannot help but notice Red Rock Resources (RRR), motoring away. With the final thought in this special summer snow edition is, the Phorm fundraiser. Phorm have Phorm fundraiser. You have to give companies like this some phorm of credit for just keeping going. If there's ever an AIM TV, we may see adverts for "you can give just £500 a month" to feed this board or that board. 

Limited time to discuss the UK Mail (UKM) trading statement whose indications back in May that it was going to be bad and have become rather self-fulfilling (and worse). It’s wise to read UK Mail and acknowledge the issues. Profits expected to be 40% less compared to last year...despite "opportunities." Have UKM been conservative with the guidance? 

Happy Hols, Fraser

Morning Mumble: QE...the amateur simpletons view & WRN...+++Rio, BLT, Monitise, Fever tree and Euroscepticism.

Good Morning,

Its coming and the bets are on but with the Swiss National Banks (SNB) decisive actions on Friday the market is looking for something a bit more charged. Putin will be praying for a significant cold spell, perhaps even planning a late 2015 re-entry where he can obtain leverage. QE is likely to assist this conversely promoting inflows of investment (where possible). The markets are getting hooked on drama rather than consistent and solid performance (read as also investing in crap!) with common-sense being applied. 

Unlike America where the culture may have ranges (diversity) but similar agendas, the Eurozone does not have this luxury with contrasting voters and more so agendas of protectionism (read as Germany and France albeit not a united front). 

Without pretending nor even attempting to be all things Euro or Macro, it’s looking more and more like an inverted pyramid with Germany propping up the fragile economies of the Eurozone. When considering the outcome, the markets will be cooking on gas again until they're taken off the market welfare assistance (QE). The real risk is the incapable governments utilising excuses to justify their spending rather than address their budgetary needs quicker to re-correct the fundamental issues within their economies.

The sticking point is who will be responsible for each member states debt. Its ironic that in alleged harmony the wealthier members do not want to share the load (read as take the load). So whilst the finer print is muddled through one can't help but wonder if the EU is in for some re-branding, to European Disunion. 

The conflict of interest is disliking all things EU, with yet another tier of bureaucracy where if the costs of the EU were stripped out it would be a long-term form of QE anyway. For every country contributing there's a net benefit to 2 by their membership in the EU, its a wonder its lasted this long. The EU may or may not have a determination of strength in due course if QE does not work. 

The issues of high level unemployment (Circa 10%+*) are unlikely to be improved by the EU's bond purchases as greater focus on the issues within each country are needed. France has yet again (for the third time) asked for an extension to deal with its deficit. The French are notoriously difficult to deal with when they're doing something or not...(yes thought was put into the phrase). So in the absence of economical stimulus with a focused approached its unlikely to be as effective bar a few KPI's  (Key point indicators). These are likely to be superficial living standards and welfare claimants measures (distorted by in work benefits).

In the markets today, we had Worthington Group (WRN) (still suspended pending a prospectus which should have been out by now) update on CPS Energy Resources. The question should be, with the information (surely) to hand why was it not specifically excluded in in the Company's calculation of consolidated assets, profits, sectors or geographic locations announced on the 9th January 2015. After all the deal was announced back in October 2014. 

Is this one for the regulatory team of AIM...even as far as the FCA. The company made no exemption for CPS in their calculation of the net asset value for mining, oil and gas within the announcement on the Friday 09 January, 2015. Today, in the RNS only four areas are now included: property, litigation claims, new economy and emerging markets, yet 13 days previously it includes oil, gas or energy, oops and also mining now! If you hold the stock it would be wise to call an EGM and force disclosure of everything including the prospectus. Actually why bother, if you own this stock don't read on, close the page!

Copper woke up this morning, I suspect with some draw from gold and the dollar weakening. Iron ore minnows were getting a kicking, whereas Rio and BLT shrugged off the obvious and went on an easy trading run. In the absence of traders and pension funds would Rio and BLT be circa 2,500 and 985 pence respectively? Although there’s starting to be a good argument for near bottom of cycle buying that I disagree with. Rio's ramp up and inventory sales support their thesis on expansion, will it continue?!

BLT having further issues with Manganese as Roger Bade pointed out, prices down circa 10%. Over to the Atlas Iron (ASX: AGO) whom had opportunity to get out considerably higher thanks to the DCE (Dalian Commodity Exchange) extension in trading hours. Gold and silver both stabilising and awaiting the next indicators its over to ECB QE. Oil likely to benefit as well with the steady appreciation continuing, appreciating to circa $55/bbl give of take 3% drift between WTI and Brent.

AB Foods (ABF) finally giving in to common-sense with significant selling. Does it really take that long to digest the results? EMC view January 15, 2015, who'd have thought it and time to quote myself: "With little upside on the current SP, it’s wise not to carry profits much past the news. Under review for the short, now January 2015 has arrived." Will a DRIP (Dividend re-investment plan) assist? I doubt it...

Hulme Capital had a few issues this morning with the 'wording', for which having wanted to find out more had some diplomatic clarification from two companies in RNS REM & UKOG after this morning's Dismissal of Adviser REM & UKOG. By sheer coincidence both with a related party associated to both companies, Mr David Lenigas.

Monitise's (MONI) trading update & initiation of strategic review, informs us its up for sale with the price reacting in the right manner. With UK Mail (UKM) coming out the reporting starting blocks 10 days ago Royal Mail (RMG) Nine Months Trading Update had little in the way of surprises and was the long to the news. With little commentary (in fact none) on fuel cost benefits, RMG have missed an opportunity to promote their own stock, improving margins and energy costs reducing. 

Limited time for some, including Tullow (TLW) and Gulf Keystone (GKP) but to my left eye Malcy has saved myself via his blog today. Fever Tree (FEVR) pre-close update come with no surprises from a quality label. FEVR are the Carlsberg of tonics in my view! Having been drinking FEVR tonic for a good time, its about the only additive to gin I can differentiate in taste save for Hendricks Gin and Adnams Copperhouse Gin after one.

Atb Fraser

*Unemployment stats: Greece 25%, Spain 23%, Cyprus 16%, Croatia 16%, Portugal 14%, Italy 13%, Slovakia 12%, Bulgaria 11%, Ireland 10%, Latvia 10%, France 10%....all 17 others sub 10% with an average of circa 10%. 

Morning Mumble: CU tomorrow...Maike, Au+Ag and Greggs (GRG) + Oil Woah! Defaults coming...Goodbye Vedanta

China’s Maike says copper set to rebound By Henry Sanderson now the knife catching begins. Although futures and orders contradict the statements by He Jinbi. With copper futures edging lower for March at circa $2.7200/lb (flat) for May 2015 and being limited in orders, it questions the 3 month outlook by Maike. One would be wise to acknowledge that the outlook for copper in the mid-term is good, in the short-term, as alluded to yesterday (EMC) the economic indicators are not as positive as some would have you believe. What the pricing is suggesting is China could have been the material cost in copper by not their (ghost) speculation not their physical consumption.

With most traders looking at the technicals of gold bar the obvious common-sense approach, both Gold and Silver made solid gains. Gold (Au) $1236.40/oz. currently and Silver (Ag) $16.84/oz. Au is likely to see headroom resistance at circa $1239.90 and Ag circa $17.10. With the larger bets going in on NY and Asia for a material tick up some $100+/oz., the surprise will be if Au breaches $1350 by March 20th (Key date for those speculators reviewing more than H Samuel restocking (Sarcasm).

Having to review my thoughts on Greggs (GRG) EMC 15 December 2015. Showing its wise to follow the market (at times), with oil tumbling at faster levels, the weather being more than favourable and food on the go in season it was rude not to long through the Christmas period. What today's trading update does show is I was categorically wrong to call the fluke in September (EMC). Dixons Carphone (DC.) has performed as well, but banking as it hit my target price. Who'd have thought the long/short balance was near 50/50 for the Christmas period, albeit changing as the obvious candidates drop further. 

Greggs (GRG), momentum appears to be gaining strength and with no likely interest rate rises in the pipeline for some time, low oil, retail and grocery + convenience is likely to benefit save for a deterioration in their equation of positive trading (aka weather, retail and higher discretionary spending). Could the Supermarkets slower declines in LFL (like-for-like) have been saved by lower oil! Improving the costs in the entire supply chain and on the shelf.

W Resources (WRES) is yet to change tracks positively, and down to the Tungsten price...edging lower circa Tungsten APT European $295/mtu (Metric Tonne Unit). It might be wise for Thor Mining (THR) to revisit their expectations of prices at least sensibly and reduce their expected $354/mtu within their upgraded Feasibility Study. Even with some sensible revisions, THR's returns are looking half decent allowing for a higher cash cost. In addition to the lack of gold benefits as Crocodile Gold Australia Operations Pty Ltd ended the memorandum of understanding in August 2014.

It was common-sense the oil trade (read as don't be long) EMC Oil the Support, we're currently only two bucks off my critical $43.20/bbls before OPEC has to act at Crude Oil (Brent) $45.42/bbl. Whether they do or not is another matter as the material downside has to be balanced appropriately with the benefits. Strangely Quindell (QPP) had an exposé on the short ownership as soon as nature would allow, it’s strange that Brent & WTI traders have not ! Over to those complex trading houses with opaque ownership structures to keep silent and the press not to break the status quo! No conspiracy theories here, just facts.

What the market is doing with itself is hilarious, CityLink entered administration but it takes a huge great flag from UK Mail (UKM) today to point out the obvious with their Q3 trading update. The comedy this morning being "the gossip" in my in box with an alleged seasoned professional repeating an echo of years back when Better Capital (BCAP) bought CityLink. Are parties aware that BCAP owned CityLink? Its highly unlikely they'd be bidding for certain assets. BCAP years ago was my favoured play, selling out and moving on to Blue Solar in circa July 2013 for my low risk pension play. 

Whether early on not today it’s a sad day to be closing the shorts with Vedanta (VED). Having been shorting this stock since mid-2014 its time to bank and wait for further indicators and an update from the company. VED has a number of risks besides the commodities prices...that being the majority shareholder and what he decides for VED. With net debt at the last count being $9,054.6 million its likely the tumble in commodity prices has not improved debt, with a deterioration in cash but gross debt maintaining the same levels of $17,234.0 million. Perhaps a little premature but one is always wise to bank profits. This will need a revisit soon.

Little time for everything else on such a big day...

Atb Fraser