Morning Mumble: Glencore (of course), Countrywide (CWD) and Vedanta + various items needing further analysis.

Good Morning,

With so much going on, there’s no apologies. Admittedly the messages enquiring after my well-being were somewhat amusing. We’ve had oil supply contracting thus the price appreciating - as a result of Brazilian strikes and Libyan woes. As mentioned a few months ago, oil is about the money. With fears of floods in Texas and the like expect, the futures to rally – Hooray for another swallow.

There’s been various discussions regarding commodities trading, some better written than others, Banks face fresh pressure on physical commodities (FT). Positively for Glencore they've been dealing with it sooner rather than later, the implications for their available finance will no doubt pan out in due course. 

Leading in to what was announced yesterday in the US, Streaming Transaction - Antamina with Silver Wheaton. Quite simply, compared to Teck Corporation (TSE/TSX: TCK.B) it’s a scorching deal. No doubt structured tax efficiently as well. Will need to revisit this to do a comparative, but on the face of it the 20% of spot price for a reduction of the upfront monies is a winner for Glencore. The also hint/imply there’s another one in due course. 

With limited time, the Q3 and corporate update by Glencore is pretty much as expected, Debt is starting to be within sensible levels. Perhaps the webcast all those months back should be revisited for a body language lesson, not only in presenting but the reaction to “risks” that were rightly questioned. 

With what Silver Wheaton and Franco Nevada (both listed) are paying, why companies are not rocking up to their door I’ll never know (scuse the pun). What if Silver Wheaton’s tax position is challenged? Not only do we need to consider the implications on the commodity prices they operate in and the flexibility of accepting terms, but what are their investors’ expectations. They are now under the gaze of the EMC followers. 

We had countrywide confirm everything the market knew about Foxtons today, with a profits warning disguised as a trading update. Simply the recovery wasn’t there as they expected and with guidance lower. With this in mind, there’s no reason to buy the stock above 360 pence or hold it! Unless you’re in denial…surely not as a reader of here!!

Vedanta interim results were dire in comparison to Vedanta Limited’s update on the 27 October. Time permitting, we’ll perhaps return this evening for GLEN and VED. Glencore may be out of the woods, but Vedanta need an injection of Cairn Energy cash. Their model without the conclusion of the Cairn India deal has vapours of a debt for equity deal, which perhaps won’t be so kind to equity holders. 

The market really does need to consider the issues being seen across Aluminium, Steel and Iron Ore. Mentioned here awhile back, the subsidies relating to energy pricing and employment are tipping the scales to one of outright 150% anti-dumping taxation to avoid world domination and carnage of localised industries. We recently read that Cliff Natural Resources was looking for their toys outside the proverbial pram with regard to the actions of the Chinese. 

The final thought goes to a strong dollar, copper, and the iron ore price that has a smell of napalm about it, $46.5-$47/t. With China’s GDP guidance now being acknowledged as a realistic 4%, (A win for EMC), we’ll consider the implications over coffee. 

Atb Fraser

Morning Mumble: ASOS - with market muppetry - Genel (GENL) its looking like a turn around but two swallows don't make a summer & VW - the realities + putting Presidential hopefuls media campaigns to shame.

Good Morning, in the morning as well!

Very brief so kept it to bullets...hopefully. 

• ASOS - (ASC) Final Results were out today and they were ahead of EMC expectations - bought into the sell-off. Consideration is, that although they don't justify PE's of a stellar proportions, its common-sense to consider the positives. 

• ASC have finally realised the need for brand loyalty in the online market space with their roll out of ASOS Rewards loyalty scheme. Its negative on margins (50 bps) but does encourage repeat business. With sales likely to be around 17-20% ahead for the year. Over to ASOS:

Following a successful trial, we will launch our new ASOS Rewards loyalty scheme during the next six months, initially for our UK customers. This rewards programme allows customers to build up points on purchases, which become convertible into vouchers for use on our platforms. In addition to this, customers will unlock a wide variety of other rewards such as birthday discounts, free next day deliveries and exclusive content.  

• Genel Energy - (GENL) gave a trading & operational update that was about the market. Swiftly followed by the Receipt of payment for KRI oil exports from Taq Taq field from the Kurdistan Regional Government (KRG). The "if" factor is the need for regular payments to be maintained and the market has had many a false dawn. The costs are being managed and with the current level of KRG payments at least interest payments and debt service is more than likely. 

• GENL - Consideration should be given to the guidance that is implying that supply was shut in until such time as the KRG put up. Time will tell on the latter, but certainly more positive than at the half yearly. 

• Volkswagen AG (ETR: VOW) recent share price support will be tested as news becomes apparent. Reuters - Edmunds.com and associated piece is telling, now consider the implications of the downside in Europe and potential further pressure in China. 

• VW have been very clever in the main - dealing with the crisis in text book crisis management. Credit where credit is due, they've kept the media and associated press articles focused on the marque VW, without the domino effect crashing through Audi, Seat and Skoda. Although, there may be some perception/overlap it will be limited. 

• Research (EMC's - we fund our own so reference it) - The opportunity based research on peoples’ perceptions of car manufacturers suggests that there is a devaluation in the VW marque - Passat/Jetta/Not Polo/Golf and Gold Estate and Sharan with a lesser degree to the Beetle. The irony being the Touareg, where owners 'didn't tend to worry' (we've avoided using the words, do not care).

• The impact and terminology used was more positive on the 3 other marques in the VW stable namely Audi, Seat and Skoda. Although this may change as lawyers grasp the media to force a settlement rather than have a showdown in the court room. This is a significant event risk/crisis management for VW. 

• For those that know a Bentley owner, whom we shall call Indiana. When asked about his perception of emissions on cars. Don't expect many donations to Save the Planet or Greenpeace in his name over the next few years! With a suggestion that he never gets to drive his car! As if!!

• Costs regarding the ‘fix’ for the VW Emissions fixing/rigging are likely to be higher than the initial consensus - Triple Pundit runs with - As Recalls of Volkswagen Cars Begin, Costs Could Climb to $40B. Those early share price targets of buy sub €130 will no doubt be under review. We maintain our target for VW - €87.63 (Euros) a share. The damage is yet to be done to perception. Over to VW's media campaign that will no doubt put some presidential hopefuls’ budgets to shame! 

• Rurelec – (RUR) The amount of communications regarding Sterling Trust today is truly staggering. We've had the company down as a jam tomorrow stock since the handling of the International Arbitration and then the spin-out of Independent Power Corporation from Rurelec. 

• Sadly for Sterling Trust lessons of diversification are a little too late. The spin-out/off of IPC contradicted the transaction in the first place. In the absence of further developments that may return a little to shareholders, don't hold out much hope. RUR has been a sell since the international arbitration and does not warrant much other rating bar avoid/high risk punts only. Have IPSA announced similar – one simply cannot be bothered to check.  

• Hochschild - (HOC) new shares hit the market today. With so much leverage, why they only raised the limited amount and didn't elect to shore up the balance sheet is anyone's guess. Perhaps there simply wasn't the appetite for a large fundraiser in the silver space currently?

• Some half decent results for gold miners today, more later once we've found a few additional toes to aide things. Petropavlovsk Plc (POG)’s interim management statement and Polymetal International (POLY)’s Q3 results.

• We’re hearing various bits of gossip regarding Glencore’s Zambia mines - namely Mopani – are GLEN conducting a deal to finance the expansion whilst maintain operations? One suspects not, but any rumours to assist their price won't go unappreciated by the IR department! Perhaps one for the broad-sheets? Anyone up for some Mopani?

• Vale SA – (NYSE: VALE) production report – were described as strong. With records being set in production it’s not good news for the FE (Iron Ore) price. More time needed there.

• Glencore - (GLEN) will be pleased that they "sold" their the Falcondo nickel operations and the Sipilou nickel projects. What with Vale’s nickel production up, Vedanta’s Hindustan Zinc Q2 production announcement hasn't assisted Glencore one bit! What’s the read across to Glencore’s affirmative action? VED need a stronger headwind than just Zinc

• Vale’s Q3 - results here.

Atb Fraser

Morning Mumble: Chinese Auto's (Designs) - reduction in sales tax + housing stimulus + Vedanta (Iron ore), Glencore (Thermal Coal + PGM) and Centamin

Good Morning, 

Near all mining/resource stocks rose until the last hour yesterday where profit-taking took place. In part due to the Chinese machine waking up in what would have been near 12hrs later.  With one day of trading before a weekend, the markets will be looking to some indication of the Chinese outlook. In addition of course to the PR (Glencore) and the overall commodity price actions. The SHCOMP finished up near 3% in thin but positive trading.

With shorting currently limited in China it’s unlikely anyone has been impacted significantly and in fact, their market is likely to have profited. There will be a read across to the higher material costs to Chinese manufacturers and producers. Despite thin volume, iron ore has been slipping and with margin requirements being higher, don’t expect too much of a recovery with supply increasing.

We've discussed the decline in liquidity in China for some time, whether in SOE's (State Owned Enterprises), private sector or Local Government, there’s a very consistent theme. The FT has highlighted what has been known about for some time: China futures market decimated by trading curbs. All the same worth a read, but more so to keep an eye how things pan out. 

News is apparently flowing out of China that new stimulus packages were announced whilst the Golden Week Holidays were in full flow. It wasn’t this week at all, the policy came into effect on the 1st October, just in time for the Golden Week! One wonders when people will read the press releases properly.

In an effort to stop the rot and improve the decline in car sales (See: CAAM Chinese Association of Automobile Manufacturers), they have cut the sales tax on passenger vehicles to 5% (from 10%). The criteria is limited to engines below the 1,600CC and time limited until the end Dec 2016. 

With a degree of humour, VW might have some good news - China are likely to implement additional incentives for cars that don’t meet the emission standards. We obviously avoided calling the scheme scrappage.

For Western Manufacturers importing or operating under a JV there will be some positives. The main beneficiaries are likely to be the Chinese manufacturers with small engines. Feel free to check out the designs see: Great Wall Automobile Company, Guangzhou Automobile Group Co., Ltd (GAC), Zhejiang Geely Holding Group, Changan and SAIC Autos (MG Rover etc...). We are obviously not qualified to comment on the design or quality, perhaps there’s some cultural differences one needs to acknowledge?

Considering the last time (2008/09) such a specific stimulus was implemented, sales peaked near 40%, albeit declined 50% year on year until now being reduced back to normalised single-digit growth.

With consumption being the key focus, a mobile population will be incentivised to spend hard. Whether it be an increased numbers of shopping trips, holidays (driving holidays are on the increase), eating or visiting family, it’s a delightable feast for the economy and the tax revenues!  Assuming of course that the Chinese buy into the enticement / tax cut.

With income growth slowing, deflation and risk of redundancy or job sharing in most sectors, being enticed to take on the liability of a car with a) via credit or b) utilise savings – it’s going to be hard to entice new customers.

Until more recently similar contractions have been seen in the housing sector, where buyers have been unwilling to buy in significant numbers. What with the newly married “living” with parents situation is on the increase again in China.

Property buyers in China know all too well about paying over the odds for assets. Last week’s adjustment to the down payment requirements for a home will aid the property sector. With a reduction to 25% from 30% it’s a notable enticement for some. Although only likely to benefit those whom are well on the road to purchasing a property – albeit purchasing off the Government is still the preferred method with such hefty discounts available.

China now has an emerging tier 1 and 2 divide (North-South Divide), where prices of property in small cities and towns are falling, whilst larger towns are seeing a renewed interest. Aided in part by a reduction in prices, free-goods and price reductions that the tier 1 market has barely had to adopt to motivate sales. (See Top 10 below – if you have to buy)

1. Hong Kong
2. Shanghai
3. Beijing
4. Shenzhen
5. Guangzhou
6. Shenyang
7. Qingdao
8. Nanjing
9. Tianjin- this may however change as investment is focused elsewhere. 
10. Chengdu

We had Vedanta seeking permission to export more iron ore from Goa. Why they’re bothering with prices at $40/t FOB, is anyone’s guess with Roy Hill and Tonkolili (Shandong) firing up. One suspects they have to be at full capacity to make their operations modestly cashflow positive.

Just as Glencore’s had plugged most of the holes, yet more market woes. NH@FT’s article on Australia thermal coal price at 8-year low has been followed by Coal Problems Being Made Worse by Global Slowdown, Glencore Says (BBerg) - not the best timing for Glencore. However, one is minded to think conservatively with regard to thermal coal.

Its best to avoid sticking pins to prices specifically, especially the likes of coal where so many have been burnt before. It’s prudent to test the theory that the prices are perhaps near to the bottom - over to X2 Resources and Rio.

Like many in the commodities space, the marginal producers have been saved by costs that are reflected in dollar terms, with a benefit from a weak local currency for labour and energy/fuel costs reducers. The operators have averted (delayed) the inevitable pressures to shut in production/mothball. As the situation reverses, expect a tightening in supply to benefit pricing.

Glencore’s discounted offering is as a result of declining demand in once upon a time more stable markets that had some degree of clarity in outlook. Japan’s restart of Nuclearreactors  benefited the likes of Tohoku Electric Power, whom have just agreed with Glencore for premium thermal coal contract at $64.60/t.  A near 14% discount to the previous contract has not gone unnoticed.

The issues being experienced in South Korea and Taiwan won’t have helped the bargaining power of the thermal coal producers. Asian countries, with a majority of trade bias towards China are starting to see a tightening of liquidity in part because of reduced trade with China.

As a positive Oil, save for any major uplift in crude supply (Shale operators be warned) that would impact on pricing, its likely to have found some form of a floor. With shale producers having an appetite to hedge their production around current prices, its suggesting production is reaching some form of normality - contrary to the earlier opportunities that were missed.

Glencore appear to not be pushing the news they’ve shut in production at the Eland platinum mine in South Africa, with the loss of 818 jobs.

Over to gold - Centamin Egypt (CEY) Q32015 Preliminary Production Results reminding the market why it’s sensible to factor in lower on grades, production or machinery woes. CEY’s grades weren’t near the reserve average, so suspect costs to be impacted to a small degree.

Given a sensible headwind in grades, CEY are likely to just drag themselves over the 430K bottom line guidance by near 2K ounces, assuming production of near 110K+ ounces in the 4th Quarter. A reminder that production was meant to have annualised at a rate of 450K ounces by the 3rd Quarter if not the 4th. As stated in the Q1 production results. Date for diary, 11th November 2015.

Finally, a positive result for Northern Dynasty Minerals, where a report by Former US Senator & Secretary of Defense William S. Cohen has been released. Suffice to say it doesn’t read well for the conduct of the EPA.   

Atb Fraser

Morning Mumble (Shhh don't tell anyone): Voilà Freeport-McMoran (FCX), Mr Debt with implications for Vedanta, FQM, and the turnaround of HSP? + "The largest "Sale of Things" in 6 years

Good Afternoon,

Whilst no one is looking I've managed to sneak a couple of things in, including the Wolf Minerals (WLFE) call that wasn't that informative if I'm honest. They did highlight the reduction in global output as higher cost producers either close, mothball or are placed on care and maintenance. It didn't help dialling in late as I forgot the time difference. 

Having had my fair share of alcohol on a sunny cliff side restaurant, it dawned on me whilst looking down, what about that rather large entity known as Freeport-McMoRan (NYSE: FCX) Mr Debt! We know and understand leverage, it's not a good idea to be "over-leveraged" in a space of falling commodities nor so where one of the main consumers is "unwilling to pay much of a premium to operating costs."

Often there's a perception that leverage is prudent, it’s got tax benefits etc...Simply, that's a positive in small doses, but to bet the ranch on loans/bonds that in percentage to equity are just plain silly. More so, a common mistake of those trading CFD's/Spreadbets that perhaps have more aspiration than the reality of their consequence. The commodities sector is a prime example of what was wrong with Northern Rock. Plains Exploration simply was a wrong purchase for FCX, not now, but at the time it was wrong, no hindsight is needed. 

The behemoth of companies that have bet on such expansion with debt. They've been covered for a long time, finally the realities are bearing down on these leveraged plays. The Yuan / RMB depreciation is unsurprising, for those following the debacle of the Chinese companies with high inventories as a result of over production and cheap borrowings,. We know too well the outcome, voilà solar panels, housing, copper, iron ore, coal, stock-market, infrastructure projects, government revenue streams declining including corporate taxation and land sales (albeit improving) etc...

With Chinese inventories expanding at factories, gate prices under pressure and limited sales, they've got to entice customers somehow. So why not devalue their entire offering and have a "sale of things." 

The devaluation is the primary example of what "has been banged on about here" for how long, to quote one avid critic. More so, one suspects its as a result of the FED's guidance and strengthening of the dollar, perhaps an FX play that could wobble the potential for America. Least we note forget, the Yuan RMB is "almost" a dollar, commodities, goods, services often represented in USD terms. 

With misguided expectations, the ramifications will have wider implications than are being felt in the aluminium sector, steel, plastic goods space etc...etc...The Chinese are now entering the market with oversupply of semi-processed and finished goods. Shipping rates anyone? 

With Freeport-McMoRan guiding on the requirements of $1B of cash required, it would be rude not to consider the fact they need more than that paltry $1B suggested. The balance sheet by EMC estimates is near $21.2B Debt and limited cash (estimates: $340M).

FCX debt is simply unsustainable in the current commodities cycle, especially as Plains Exploration was more prudently called "Pains Exploration." FCX needs around $2.5B and the market should be aware $1B is only a temporary measure, whereas something more prudent would be to raise near $2.5-4B to enable the finalisation of capital commitments on projects and give sensible space and time to a restructuring. 

FCX could even utilise FQM's excuse for a capital raising that was on the basis of "a stronger copper market following a period of weakness"? (EMC: FQM 30 July 2015). Maybe even throw in a bone or two about consensus on WTI being circa $59/bbl in 2016 to tempt those believers and copper at $3.50/lb by year end...

If one was leveraged a la Vedanta (VED) or Freeport-McMoRan (FCX) the outlook isn't great. Vedanta are trying to raid the Cairn India's cash pile. This is insufficient, allowing for all their operations (capex needs) and now zinc suffering with a 10% drop since their announcement that they were rather "upbeat on." EMC: VED (31st July 2015) and FQM's Bitter Sweet Pill (EMC: FQM). 

Will FCX have to offer a large discount or motivate the stock, the latter is more unlikely than the former. Although FCX shareholders appeared to have celebrated FCX needing $1b when it's rather like putting a band aid on a share bite. 

We had a day of comedy yesterday. There was a celebratory notice by Vedanta commencing iron ore operations at Codli in Sanguem Taluka in Goa with 3.1m/t's hitting the market. Are we missing something? Perhaps the get out of jail free card is the terminology "The Company is likely to recommence operations from August 10, 2015." Surely an announcement on the same day and being 5 hours ahead of the UK reduces the chances of operations not commencing? Perhaps that's being too picky, after all, a quick trawl here and grammar and perfection don't exactly go hand in hand.

So with a global surplus, what more did the commodities sector want than more than another 3.1mt's of iron ore with a potential 2M further to come?  Hip Hip Hooray, what next African Minerals (AMI) making a return? Although with humour, one wonders if that was the only commodity to suffer due to a few accounting issues at AMI. This dropped in the inbox yesterday, Theophilus Gbenda Blog (2012), surely not but the infrastructure deal does give food for thought. 

Results out for Hargreaves Services (HSP) that will need more time. See: Closing HSP short Positions. If there were some decent results in the coal space, these were them. 

Fraser

PM Bolt-On: Good news for Zambia + ZESCO & First Quantum Minerals

Good Evening, 

ZESCO have managed to source additional power to replace the hydro shortfall. First Quantum (FQM) are prudently quick to update the market on their power improvements. Over to FQM, full power supply was restored to its Kansanshi operation and Sentinel project by ZESCO, Zambia's state-run power company.

TORONTO, ONTARIO--(Marketwired - Aug. 6, 2015) - First Quantum Minerals Ltd. ("First Quantum" or the "Company") (TSX:FM)(LSE:FQM) today reported that, on August 6, 2015, full power supply was restored to its Kansanshi operation and Sentinel project by ZESCO, Zambia's state-run power company. This follows the receipt of notice of the declaration of Force Majeure for the supply of electricity from ZESCO to Kansanshi and the subsequent reduction in electricity supply to both Kansanshi and Sentinel as reported on July 27, 2015.

While the Company believes some restrictions may be re-imposed during the remainder of 2015, ZESCO has stated that it has contracted independent power producers such as Maamba Collieries Limited and Itezhi Tezhi Power Corporation through the signing of Power Purchase Agreements to procure more electricity by the end of 2015.

On Behalf of the Board of Directors of First Quantum Minerals Ltd.

G. Clive Newall, President

Although not necessarily permanent, at least ZESCO are being active. Admittedly with parliamentary discussions in Zambia showing knowledge of likely electrical generation problems, could it could have been completed sooner? A very healthy bounce post the news, can it be sustained? ZESCO have not confirmed whether the new supply is online now or whether they have increased production at Kariba et al. (Source:Hydropower.com/Zambia)

We shall await news from Glencore, Vedanta and Barrick. 

Atb Fraser

Morning Mumble: Kumba Iron Ore: What's $200M between friends (AMSA), India's restrictive practices? VED, Rhino Resources, Chapter 11 (NYSE: ANR) & The Market Vectors Coal ETF (NYSE:KOL) Whoops! + Fresnillo! & SXX Good News!

Good Morning,

We knew Kumba Iron Ore (JSE: KIO) had difficulties. It appears ArcelorMittal South Africa (AMSA) have won the spat with Kumba over the 20% Sishen, see: EMC: Kumba + Sishen. Just not how it was expected, but they've won conversely/perversely. They did something very shrewd, they are now simply not paying a premium for Kumba's ore any more. What’s $200M of revenue between friends?

The market should be appalled with itself for reacting so slowly to the pricing assumptions of AMSA. Kumba has relied upon a sales agreement with AMSA for near 12 years, whereby 6.5MT was contracted via a supply agreement. Last year’s contract was worth just over $500M to Kumba. Unfortunately, the supply agreement does not appear to be mutually beneficial anymore, and perhaps never will be again. AMSA can simply import iron ore at near 60% less than the price ($80/t EMC assumptions) that they had been paying to Kumba. 

This contractual issue/supply agreement has a number of impacts. Not only does the profit on the supply contact equate to almost all the entire planned CAPEX for Kumba, but more so, this revenue supports the operations at Kumba's Northern Cape operations. With the contract value, assuming Kumba roll-over, being worth near $300M compared to the previous $500+M. essentially at a loss when factoring in an all in cost basis for Kumba.

One suspects the contract negotiations were at an advanced stage when a leak appeared in how AMSA was strong arming Kumba (tut tut that’s just naughty!). As mentioned previously, it's a price setters market (remember this). The Chinese wielded that axe near two years ago.

Kumba have some very difficult choices to make including cuts and/or pricing in respect of AMSA. It’s likely to be far worse for Kumba than it is for AMSA and Anglo America (AAL) (majority shareholder in Kumba). AAL may have the opportunity to fill the void, so perhaps are offering AMSA some attractive terms. AMSA’s location near Saldanha Bay could not be better for them. One analysts suggest AMSA may be tempted by Minas Rio supply.

Additionally, AMSA’s strong arm approach is likely to be punishing, as they are under significant pressure by a global oversupply of steel. If there are no Government protectionary measures put in place soon, not only in South African but India, steel producers will (not could) be forced out of business by cheap Chinese imports. Expect news on import quotas or import levies in due course. Evidenced by the aluminium prices producers in India are already suffering from because of a slump in prices and surge in cheap imports. (BALCO/Vedanta)

With a market capitalisation of $2.6B  ($1:ZAR12.64). Would you be long? There's more woes to come as Kumba’s LOM's are reducing as a result of a change in operational focus. CAPEX under significant pressure, even if they “maintain the AMSA business for another year.” Unless the global price recovers, Kumba, may not be a casualty but certainly a shadow of its former self. The impact for Exxaro may just be more significant…chequebooks please.

With interest, is the Chairman's Statement from the AGM at Vedanta (VED), where there's an emphasis on "Make in India” leading to a bounce today. There's significant pressure on India relating to their import duties that could be described as restrictive. 

India is changing, examples being the relaxation of cabotage rules (Carriage of cargo between two points within a country by a vessel or vehicle registered in another country), but is likely to put pressure on the national operators and producers in the longer-term.

The Indian Government is being pressed externally to review all levies including, agricultural and consumer goods. Complaints are already lodged with the WTO, examples being the application of the Avian Influenza restrictions. (WTO: Indian Avian Influenza). Worthy of a read to grasp the economic outlook of India is the most recent WTO Trade Policy Review: India (2 and 4 June 2015).

Some very good news for Sirius Minerals (SXX) today, with the publication of their corn and soybean crop study . The size of both these markets is material. Potash producers, sit up and take note. With no reason to hold this stock currently, one has to factor in the viability of the polyhalite being a tempting factor. Good news to assist the management in their fundraising.

Can Glencore's woes get any worse? We'll let those more inclined to see what the impairment should be on their thermal coal operations. However, their miners may actually assist the price with planned strikes etc... South African mine union threatens legal action against Glencore’s job cut plans. Remember, Anglo impaired their Australian Coal and Minas Rio assets in July by near $3.5B. Glencore blame ESKOM for the woes, perhaps they should shut some production? FT Glencore South Africa (Optimum Coal Unit). Has GLEN not been so exposed to thermal coal, then they would have fared better? 

One hopes EDF Trading Resources gets there $125M from the sale of their share in the Pennsylvania Land Resources Holding JV with Alpha Natural Resources (NYSE: ANR). ANR has natural gas assets that may pay some of the bills, but they can finalise those valuation with a chapter 11 wrapper. Over to Rhino Resources (RNO) to take a kicking as well...This doesn’t bode well for the The Market Vectors Coal ETF (NYSE:KOL) that's performed like a proverbial dog. 

Limited time to cover Fresnillo (FRES) interim results but worthy of further work, especially around the costs on an all in basis increasing. Sensibly, FRES have reduced the exploration budget for this year in light of more challenging precious metals market conditions. It would be wise not to ignore the benefits of the hedging programme either that benefits the bottom line. CAPEX for the full year 2015 has been tapered back but still expected to be in the region of $570m (vs. previous expectation of c. $700m). Whether they can achieve the 570m target is another matter. 

Atb Fraser

Morning Mumble: Inventory, How much Copper do the majors hold? VEDanta's I've tried to be positive & ANTO'fghastly buys 50% Barrick's Zaldivar

Good Morning,

What is often not considered in commodity cycles is the level of inventories. Admittedly this can act as a float and reserve. How much do the majors hold in inventories, at what price and how is hedged. We know Glencore (GLEN) had 331Kt in the year accounts for copper inventory. 

KAZ Minerals do not separate their inventory but estimates suggest a modest 27,957/t's of finished product, excluding goods in transit. KAZ, are likely to be better managed with their need for cashflow but also they have issues at the current copper price levels, paying the market near 60 cents a lb if one considers their all in costs. 

KAZ had a Q2 & H1 Update yesterday, if you're so inclined or are perhaps are one of the workers FQM are paying to twiddle their thumbs at Sentinel? 

Vedanta want you to believe they're a Nickel producer (at the moment) seeing as all other operating subsidiaries have taken a spanking on price. Over to Tom Albanese, CEO of a bunch of companies held within a complicated structure, with a hope they can get their hands on some Cairn India cash by year end:

"In Q1 we saw continued volatility in commodity prices, but Zinc has held up quite well in view of its strong fundamentals and is now the largest contributor to our EBITDA. We continue to focus on improving efficiency, costs, and enhancing production across our well-invested asset base. We have broken ground at the Gamsberg Zinc project in South Africa, improved production at Konkola mines in Zambia and remain on track to re-start iron ore production at Goa following the monsoons. Our diversified business model supported by strong operating strengths and structurally low cost assets will enable robust long term returns to stakeholders."

So, we'll focus on the good hand (Zinc) as Vedanta do not want us not look at the other hand, we'll keep it short. Vedanta have a very credible mined metal production increased of 42% to 232,162 tonnes, (Q1 2014, 163,131 tonnes), but strangely the bottom line is being punished. 

On the one hand, there's a positive production increase and costs being half decent, significant in numbers in fact, but yet at EBITDA level it’s a paltry 11%. In the absence of an accountancy qualification, is it not fair to suggest costs in the chain have risen somewhere? One has a suspicion the amendments to the Mines and Minerals Development Rights (MMDR) Act, means producers have to shovel more for the same money. 

So with taxation rates rising into 2016 as guided by the Indian Government, VED are going to have to focus further on the bottom line just to maintain existing profitability. Unless one has missed it, analysts are not factoring in the CSR Levy at 2.5%, previously 2% from memory plus the increases in corporation tax? With a campaign going on to lower the District Mineral Foundation (DMF) tax as miners in India are punished, there may be some hope. 

With a bunch of Aluminium producers campaigning for an increase in the import tax on ingots, it’s not surprising VED are are reviewing restructuring some of our high cost operations in the Aluminium segment. (Source: India worth a read with a mention of VED's subsidiary Balco). VED's aluminium contribution at EBITDA is negative. One just hopes for VED's sake there isn't a slump in Zinc prices, as it’s got a very large burden on the balance sheet currently. 

VED's net debt, only up a modest $300M. Over to VED to cover their own financial update, 

Financial Update

The Company had total cash and liquid investments of approximately US$8.2 billion and undrawn committed facilities of US$1.1 billion as at 30 June 2015. Gross debt and net debt was at US$17.0 billion and US$8.8 billion, respectively, at 30 June 2015, slightly higher than US$16.7 billion and US$8.5 billion at 31 March 2015, on account of funding for projects and higher working capital.

As at 30 June 2015, FY2016 debt maturities includes US$350 million of bank loans at Vedanta Plc for which refinancing is in place and US$ 2.1 billion of term debt at the subsidiaries, of which c.$400 mn has already been tied up and the balance is to be rolled over or refinanced through longer term debt. In FY2017, Vedanta Plc has debt maturities of US$2 billion, for which we are in an advanced stage of discussion with the banks and these are expected to be refinanced by the end of calendar year 2015, while subsidiaries have maturities of US$1.3 billion for which we are evaluating different structures and options.

Antofagasta will acquire a 50% interest in Compañia Minera Zaldívar Limitada (Zaldivar), and will become the operator of the Zaldivar copper mine. My question being, is it "expected to be immediately accretive to Antofagasta's earnings and cash flow per share."? Really? Saves Barrick (NYSE: ABX) from flogging some more of Acacia Mining! Or does it? 

The final thought goes to Syrah Resources, would you stump some cash up? 

Atb Fraser

Morning Mumble: Anto-fghastly (ANTO) & the markets alleged White Knight (NYSE: FCX) and the magical ingredients, LGO: Why I was wrong to...JKX & SLP, self-harm!

Good Morning,

Today's Q2 Production Report from Antofagasta (ANTO) gives some idea of the woes for the industry. It doesn't look great even allowing for reduction in supplies to market including the recent near 200K/t's drop in guidance from other producers, the Zambian load-shedding (EMC: Yesterday) and ANTO's own guidance revisions downwards to 665,000/t's of copper, as a result of some commissioning issues on the crusher circuit. 

Conveniently ANTO don't give their previous guidance, so here it is. For 2015, it was 710,000 tonnes of copper, 250,000 ounces of gold and 8,000 tonnes of molybdenum. Not only do they have the woes of gold prices being at lows, molybdenum price being at a level it's questionable whether it's a viable to process it, and cooper down 45,000/ts. (EMC: Rio molybdenum (Mo) woes). As a result ANTO's cash costs are on the increase due to the MO price and lower than expected production. One would have thought with the USD: Chilean Peso (CLP) strength, there would have been of greater benefit, but this will perhaps be reflected in Q3. 

Luckily for ANTO, there may be some hope for the copper price thanks to the markets white knight known as Freeport-McMoRan (NYSE: FCX). The market may think FCX's planned production and cost cut backs (FCX Site PDF) will assist the cooper market. But with the absence of a magical ingredients, prices are likely to stay lower and for longer, this time. FCX are unlikely, like Rio or BLT, to give up market share for the sake of the higher cost producers. 

Over to FCX, today announced it has undertaken a comprehensive review of its operating plans in its mining and oil and gas businesses to target significant additional reductions in capital spending and operating and administrative costs in response to weak market conditions for its major products. These plans will also incorporate potential adjustments to mine plans and future copper and molybdenum production volumes to reduce costs and preserve valuable resources for anticipated improved market conditions in the future. The company expects to complete this review promptly and will report its revised plans during the third quarter of 2015. 

James R. Moffett, FCX’s Chairman, Richard C. Adkerson, Vice Chairman and Chief Executive Officer and James C. Flores, Vice Chairman and FM O&G Chief Executive Officer, said, “We are responding aggressively to current market conditions affecting our primary products and to the uncertain global economic outlook. These initiatives are focused on maximizing cash flow in a weak commodity environment and on strengthening the company’s financial position. We appreciate the efforts and dedication of our global organization who are supporting our plans to implement revised operating plans. We have a positive long-term view for our markets, the inherent values in our large asset base and are positioning our company for long-term success.”

The copper and wider commodities market are lacking the magical ingredients Chinese speculation and margin. These have been absent for some time (including shadow financing) and are unlikely to return without some significant stimulus from the Chinese Government. All compounded further by a basic approach to commodity back financing that has been in contraction and limited to a basics approach. 

This brings us to the question of those with copper in inventories and/or in transit priced significantly higher either, that had a muted response to the FCX news (VED/GLEN?). Especially those needing to deleverage some $18B of commodity inventories (across the board) to maintain their credit rating and profile! Perhaps GLEN have signed up for an Experian Credit account to "manage" their credit file?

Continuing the theme from yesterday on load-shedding, it would appear Barrick Gold (NYSE:ABX) have forgotten to update the market on the load shedding issues in Zambia for their Lumwana Operations Reuters. Perhaps Vedanta, Impala and Glencore are also immune or do not feel the need. Then again, perhaps Barrick need to work out the cost impact at a C1 level as they will now be marginal. Expect cost revisions near $2.20/lb (C1) and all in near $2.80/lb (EMC estimates, no plagiarism folks). 

Question of the day, seeing as China Securities Regulatory Commission (CNBC) is investigating companies and individuals selling stocks, what can they sell to cover those margins? Cars? Houses?...Also, which Beijing bank (non-state) has the greatest exposure? The hunt is on!

Sylvania Platinum (SLP) have released 4th Quarter results. Operating in the PGM space they aren't great. They've had some cash back from Ironveld, spent some on share for "employees" of shareholders, and its unlikely any dividend will be made. The potential benefit is the selling of a few assets (or divestment) and maybe a low ball offer. As a holder, one hopes you sense my unfulfilled mind-set to this stock. As a punishment to myself, and a form of self-harm these will not be sold (self-harm). 

Finally, JKX Oil release their half yearly results. Dire, although perhaps some hope from the Interim Award International Arbitration Proceedings, it’s still not a stock for any widows. More a bet on a geopolitical and financial improvement in the sector. 

In other news today, LGO Energy drill another well. Having sold this holding and gone short, there's no rush to buy back any time soon. One would be wise to wait until the result to assess the viability of the company. Perhaps we were guilty of being too keen (EMC:) closing LGO Short too early. LGO have given no update on its financing and one has a suspicion revenues will soon be committed to interest and debt repayment. Profitable for the lender perhaps but shareholders? 

Atb Fraser

Morning Mumble: They have Phorm, NEXT guidance improvements. Can it get any worse for First Quantum (FQM), load-shedding! + AQP & GKN + DRX

Good Morning,

I would like to apologise to readers for kicking this proverbial dog, but Phorm have Phorm. Today, the can is kicked back with a convertible loan note extension. In essence this is a pre-placing, keep the air conditioning running type corporate action. With little to add to Phorm, EMC: criteria for a huge short March 2014. 

The long-only contingent are celebrating with a stonking trading statement from Next (NXT). EMC: NXT March 2015. Over to Next (NXT), with an increased sales and profit guidance for the full year that supports a timely buy note by Citi on Monday. With no buy back, but the floor raised to £69.62 and a special dividend of 60 pence (2 November 2015). One will sit and wait for the trading opportunities. It’s noted a lack of margin commentary or analysis.

First Quantum Mining (FQM), has received notification of a Force Majeure for the supply of electricity to its Kansanshi operation from ZESCO. With load shedding/supply being reduced 23+% at Kansanshi Operations and Sentinel being reduced the same from 55 to 42. How this affects the guidance and ramp up is another question. A likely 2400 tonnes per day feed through, the costs will move out to the previous $1.77/lb (not C1). Are Vedanta (VED) affected as ZESCO have suggested it’s just in the North West region? Also, was the load-shedding announcement made on the 13th July? 

For the geographically minded, this has been on the cards for some time. ZESCO is reliant on Kariba Dam. Water levels there have been at lows and the outlook isn't great either. There's a material shortfall of 550 MW this year. The problem is likely to get worse, as so far the power reductions are plumb on the middle of guidance, whereas the the grid is showing a 30% deficit in power generation. Perhaps Aggreko can assist? They should be on the phone already, if they haven't already been. That's a significant 'potential' contract...

There's has been an absence of reporting from Vedanta. VED's Zambian operations are not insignificant, nor are Glencore's, who also have an interest in Mopani Copper Mines plc along with FQM. The load shedding issues will not be resolved until the end of the year at the earliest.

The issues have been discussed in the Zambia parliament over recent months by the perhaps outspoken Mr Patrick Mucheleka (MP). Not only taking a significant interest in copper, power generation but more importantly, the acquittal of former President Rupiah Banda. Perhaps to the disappointment of President Edgar Lungu?

A psychic announcement for Lonmin (LMI) thanks to Aquarius Platinum (AQP), whom Q4 production results. The pertinent issue in the commentary from Jean Nel, CEO Aquarius Platinum said (see bold): The fourth quarter was characterised by a particularly good performance from both Aquarius operating mines. Both Kroondal and Mimosa again improved safety, delivered all time fourth quarter production records and reduced costs, in what remains a challenging operating environment. The performance is testimony to a disciplined approach to operations and the operating teams at Kroondal and Mimosa deserve much credit for this. From a macro perspective, the lower metal prices which prevailed during the period and especially post quarter end will not only require an increased focus on safety, cost and production discipline, an approach which Aquarius will remain committed to, but also a focussed assessment of the viability of each shaft at each operating mine to ensure the sustainability of the business in a low metal price environment.

In case anyone is trying to fathom out what calendar AQP work to, today's is Q4. A lot of work has been carried out at AQP. Sadly the share price is unlikely to benefit much from it. It’s a testimony to the capabilities of the staff. The overall outlook won't help AQP, expect more cuts to production from unprofitable shafts. Although near a more realistic valuation than LMI...whom must be haemorrhaging cash! 

GKN results, acquisition and cash placing for another day...but watch that space. The book runners will not doubt suggest the job was difficult in the prevailing market etc.! Of course it was 'Gov.' Rather insightful after yesterday's EMC: JMAT read across for GKN! Drax's half yearly today aren't so bad. Having been a knife catcher on the climate levy changes, and a strategic review under way to consider the long term options for the Group. 

Atb Fraser

Morning Mumble (Via Email): Vedanta Resources (VED) Wanna-B-LT & the need for circa $3.5B+ more in cash & as a side thought OXUS (OXS)

Good Morning,

The proposal, Vedanta Limited (VED Ltd) and Cairn India are to benefit by the merger. Vedanta Resources (VED) ownership in VED Ltd "may" be diluted to 50.1% from its current 62.9% holding.

Cairn India’s implied premium is 7.3%, not exactly enticing even allowing for the 7.5% Redeemable Preference Share. The alleged sweetener and merger is on the basis the deal is “allegedly” going to be tax neutral.

Its over to the minority holders of Cairn India to a) accept it b) hold up for an improved offer or b) worse the Indian government take a ‘different’ view on the valuation. If either happen, VED has serious issues with much needed cash, their financial covenants are in tatters.  

The biggest argument for the merger is allegedly to add “protection in diversity” in the business model. Quite why there’s a benefit to those “oil” investors that allegedly get exposure to “tier 1” assets is another story. The real benefit is the cash for VED (and associated entities) whom will also benefit from the re-rating.

Assuming all goes well, tax neutrality, and shareholder support, VED will be well placed. The question why Cairn India holders would want it, whether there’s a viewpoint of a bottom in commodity cycle taken or hope of recovery (overall).  After all, VED Ltd has had all its profit depleted by the commodity cycle. Aluminium en par with the collapse in oil, although oil has made some recovery.

VED’s entire structure is not out of the woods yet. VED Ltd need more cash than just “Cairn India’s” and the likely merger of Hindustan Zinc Ltd (HZL)(64.9%) that has near $1.5B in cash and Bharat Aluminium Company Ltd (BALCO) that has circa $1B in cash. The issue will be the Indian Government still has a near 29.5% holding in (HZL) and 49% in BALCO.

A recent enquiry  has just been dropped in respect of how “certain entities” including VED Ltd obtained their stake in HZL. This also included concerns over the price paid, which one might consider laughably cheap. Amazingly, Indian Government might not be so willing to let the remaining stake go as cheaply or without a special dividend.  

The sticking point is VED Ltd believe they have call options HZL and BALCO. Whereas the Indian Government don’t recognise nor consider these call options legal or valid. Whether the Indian Gov want to sell out their remaining 29.5% share in HZL and 49% in BALCO is another matter, or whether they want shares in VED Ltd. Admittedly the government have included the sale / proceeds of BALCO and HZL in their fiscal budget for next year (2016).

The Indian Government would be wise to convert the holding into VED Ltd, not only diluting VED’s UK holding/shareholders sub 50% perhaps more 35% (based on approximate valuations). The control benefits would be obvious…

A pure cash grab, whether BALCO and HZL are converted/merged remains a matter for the Indian Government demands/terms. Perhaps VED Ltd would be wise to maintain the current status quo, especially after the coal debacle in BALCO.

Over to those “minorities” to decide the outcome, perhaps determined over the weekend, VED will have to work hard to even justify anything near 600 pence. 

Its accepted that there's a confidentiality arrangement with regard to the international proceedings between the Republic of Uzbekistan and Oxus. Normal caveats to the risks associated with gossip, there appears to be some speculation in Uzbek, that negotiations are currently taking place between the two parties. Perhaps the company would like to clarify this. Whether these mutterings are speculators tired of the proceedings taking an inordinate length for award or not, one suspects they have a sniff of truth about them.  

Atb Fraser

Morning Mumble: Sainsburys Food Deflation and the Piggy in the Middle, Vedanta and Dire(light) (DIA) the belated strategic review (cash needed) + Stands Energy Addition

Good Morning,

Sainsbury’s (SBRY),  Q1 was pretty much as expected and now should be referred to as the 'also ran' in the supermarket sector. Suffering 6 straight quarters of LFL sales declines. Is there actually a price war, or a disruptive element in the discounters that's forcing more competition in the market place? What should perhaps be called a deflationary war on market-share?

Tougher competition isn't aiding Sainsbury's at all, with Waitrose improving (gaining customers from SBRY). The biggest risk is SBRY has been caught in the middle between the perceived decent and the discounters (or wannabe discounters), the piggy in the middle!

On today's results it’s very hard to substantiate a holding in SBRY, where there are simply better performing stocks, and an 'unknown' potential liability in property valuations. If one was to consider the supermarkets to a horse race, SBRY are very slow off the mark (read as react), and although there's woes for the sector they're unlikely to benefit without a strategic change. Morrison's may just be placed correctly for a pricing perception benefit. 

In conducting some research, Asda's (Walmart's) "guaranteed to be 10% cheaper" gimmick is losing interest with the customers. The shoppers prefer everyday low prices (EDLP) more than gimmicks, and shoppers whom were enticed to Asda, Lidl and Aldi are returning "home" to Morrisons (MRW). 

Expect Morrisons, with home delivery roll out starting to reduce their drop in sales and slow the growth of the discounters. More so, looking at Tesco's whose emphasis is back on the customer and EDLP, Asda is likely to suffer as a result of MRW/TSCO's actions. SBRY's is in no man's land and likely to be a casualty without a distinct shift in focus, one that price is not everything but perception of value is. 

Food cycles, mean the deflation at the checkout is likely to slow, and in parts reverse. As an indicator, one often follows Pork for various reasons (and also having to price it most days). Unusually, pork normally appreciates around Chinese New Year (it did not) and more importantly, in June prices start to appreciate, the historic seasonal trend. 

The pork prices, including the pork riblets, semy meaty that all good supermarkets should stock, have remained relatively "flat" since February/March. There has been little appreciation (3-5%) in prices that often occurs around June and July. 

Demand simply is not peaking as expected, and if one considers a longer-term price from 2013/4, with an increase in supply both in the UK and Europe, the prices have been capped out. The supermarket prayers of food inflation won't be for another 6 months at least. It will come, but simply not yet.

Yesterday, VED responded to press speculation about their corporate structure. How VED do this and what the tax implications are is another story. India's retrospective tax obligations are very public (Vodafone and Cairn Energy (CNE). 

The minority protection afforded to holders of 26% or more is circumventable by buying out the businesses, but may create an unwelcome tax liability. Whether the tax liability is better than the potential dividend distribution tax that would be imposed by cashing out Cairn India, is a question for the accountants. 

There's been some debate in the mailbox about the woes of Vedanta (VED). Continuing on from EMC: VED Robbing Peter to pay Paul, VED are stuck between a rock and a hard place, with debt being their biggest hurdle. 

Merging the entities to simplify the structure is challenging but not impossible, however there will be liabilities. The Indian's have realised the risks in holding their stock and being left  out in the cold, the stock slid near as much in Mumbai as it rose on the LSE, yesterday.  However, today, Cairn India took off today, near 12% up, one assumes the Indian market knows more than LSE. Trading up as high as 12%, currently just off 9%. 

VED's recent appreciation in price is unjustified, with a gross debt of $16.7 billion and net debt increasing to $8.5 billion. Mainly as a result of VED increasing their stakes in Vedanta Limited and Cairn India Limited to the tune of $0.8B. A tightly held stock, so expect the irrational price appreciation to continue, at least for the time being. With the change in name of Sesa Sterlite to Vedanta Limited in April, it's only a matter of time before VED as a group become a single entity with operating divisions/companies, rather than "majority interests" in a complex structure. 

No doubt the economic times will update the market before the Indian Market or LSE have an RNS, Vedanta Update & Search Cairn India, which appears faster than the Borg! 

As Leggie rightly points out, one of my favourites, Dialight (DIA). They have come out with a trading update. This "company" was of focus some time back, EMC: DIA January 2014 but the opinion has not changed. Recently Michael Sutsko from Laird Plc was appointed Group Chief Executive. It begs the question why the dividend was paid on the 2nd June! Michael has his work cut out, over to DIA...

In its AGM Trading Update of 15 April 2015, Dialight said that Group revenue growth for the first quarter had exceeded expectations but that we had a number of operational inefficiencies.

However, since April the Group has also experienced a slowdown in the rate of orders in the Lighting segment in both the US and Europe which is likely to result in a shortfall in full year revenue. In consequence, the Board expects that underlying operating profit for 2015 will be significantly below expectations and that the results for the first half will be less than the prior year.

The Board believes that this reduction in orders is linked in part to a slowdown in the oil and gas sector.

In the light of this adverse financial performance, and in conjunction with the previously-announced exercise to develop the Group's production infrastructure and processes, Michael Sutsko, the new Group Chief Executive, is leading a strategic review of the business. This review will focus will on the markets in which the Group currently operates, together with an attendant review of its operations, supply chain, and product development. 

The Board remains convinced of the longer term prospects for the Group and it expects to update the market with the findings of this review in the autumn.

As a consequence the target price of 315 pence is under review. 

Atb Fraser

Thanks Leggie for this: Stans Energy Files Additional Arbitration Claim Against Kyrgyz Republic. Diary date 29th June 2015 to see whether the Stans case is likely to go the distance if the Kyrgyz Republic do not see common-sense. 

Morning Mumble: Pressure Technologies (Another profit warning), Vedanta and the "continuation of the paradigmatic shift for Iron Ore."

Good Morning,

Pressure Technologies (PRES) gave an update on trading and notification of interim results. It’s dire, with a material deterioration in the immediate prospects for the Group's Precision Machined Components and Engineered Products divisions. Worse, the Alternative Energy Division has now been completed but the division has experienced delays in securing new orders which will impact its performance in the current year. EMC: PRES December 14 (in addition see PRES Labels). 

With limited liabilities and cash at circa £5m the company is not going to go bust immediately, but in the absence of orders across the entire company the prospects are not looking good. After their update in February, things have clearly got worse. Valued at around £30M and a tightly held stock, there's likely to be limited support in the short-term, save for some speculative buying (knife catching). Simply put, any improvement in their divisions will be hit or miss. 

No doubt the technical analysers will be looking at the gap between 270 and 211 overnight, however the price appears to be overvalued as a result of today's announcement. The company has great potential for holders, simply not at this price with too many unknown risks, and that includes the businesses inability to forecast future revenue in light of the oil tumble. PRES is a well-run company, with an unfortunate set of events working against it, it will be overly punished. 

Today, Vedanta's (VED)'s update is an example why VED's structure is so difficult (perhaps even complex) that it needs to transfer equity between subsidiaries in order to enable "cash" to target the required resource. VED's structure appears to have limited tax benefits, so one would be wise to ask why exactly is the structure so complex. (See below: Vedanta). In simple terms it’s a corporate dinosaur with little in the way of synergies between entities. Today's actions appears to be "robbing Peter to pay Paul."

The "paradigmatic shift in iron ore" is likely to be played out very soon. With gossip a joint Baosteel and CITIC Group (China International Trust and Investment Corporation) "are likely to gain full FIRB (Foreign Investment Review Board) approval" for a direct investment in FMG. Expect some nationalistic issues about Chinese investments to be negative for Australia (close the stable door after the horse has bolted). 

China's selection of 'favourites' in the iron ore sector is a shrewd move. Not only does it weaken BLT/RIO's hold on price (if there was any left), and place a long-term low cost (ish) supply in their hands, it maintains a significant diversity in the market. As evidenced by the backtracking by the China's on view on the Valemaxes fleet with the recent deal with the Chinese. A complete backtrack on the part of the Chinese. (See: Aquila Resources BaoSteel deal)

Johnson Matthey's (JMAT) results are better than envisaged, but still overvalued. JMAT has been a technical short off 3475 for near 6 months. Irrespective, the revenues are down circa 10% (allegedly as expected) which contradicts the sell-off this morning. 

Stripping out the sale of the gold and silver refining business, profit was a head at £422.8M (£406.6M), near 4% on the previous year. With such a "positive year" despite a reduction in expenditure net debt was up £265.2 million to £994.4 million (net debt to £1,037.6 million if you include pension deficit and bonds). 

The divi-will support the share price, although 2% is supported only in part by the sale of refining business. Debt on the increase there are a lot of assumptions on the positive outlook that contradict the wider vehicle market including trucks including fleet age cycles. 

With the HDD (for those layman's: Heavy Duty Design) trucks being in a positive renewal cycle, JMAT will benefit as the older fleets are being replaced especially in America with economic 'recovery.' Remember, fleet renewal cycles are being run for longer, will JMAT  be impacted as the fleet renewal cycle peaks to the current level but in the short-term will benefit. 

Can growth keep pace with the increased age of heavy duty trucks in the longer term is another matter. Perhaps the answer is a reduced seasonality which will assist manufacturers in planning. This of course is contrast to the average age of cars declining by 12.5% over a 14 year period. No change in the view that there will be limited growth and the potential for adverse currency movements. So banking profits on a technical basis, it’s wise to review the position. 

Atb Fraser

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