Good Morning,
Markets tend to be more confident in the UK as it shrugs of
its seasonal affective disorder to start the spring afresh, but not for long!
It was yesterday the supreme chartists (exc. Hugo) are now calling for a FTSE
100 retrace to near 4000. To quote Hugo, as it's unusual for him to be consider
the FTSE, if there was a retrace it would be circa 5100, nowhere near the 4000
being bandied around.
REM (Rare Earth Minerals) appear desperate to
get above 20% before any such EGM at Bacanora
Minerals (BCN). LGO don't have the necessary cash to remove the issue
of a vote for the appointment of a Director to the board. The question should
be, how much cash do REM have left? No much is the answer…
Having spoken to a few savvy investors in
BCN it's unlikely that David Lenigas will achieve the intentions via REM
without 20%+ direct holding. All holders should be thanking REM for creating a
large illiquid squeeze (do not blame shorters as they were near nil or should have been!) in the stock with the price
near doubling. This does not mean they should vote REM or any associates on to
the board, far from it in fact.
Glencore's (GLEN) preliminary
results 2014 in EMC's view should have taken a huge hit on thermal coal. The carrying values have warp the overall figures to give a false sense of security
for an improvement in the dividend, up 9% today. Viterra saved GLEN from
dismal results, debt reductions of circa $5.2b will aided those with myopia and
the savings from the incorporation of crap from XTA (Xstrata) are just
mystifying. Although when one unwinds the debt, it’s worth noting the sole
reduction was down to Las Bambas sale. Had the 'synergies' and CAPEX reductions
be substantial enough, the level of debt paid down would have been circa $6.4B
and potentially nearer $7b. (Time for a picture, it's dire!)
The preliminary snapshot sums GLEN up, but doesn't give the
whole picture. The market should have been selling into these results. They are dire if you add in coal and the return on
shareholder funds, laughable. Roger Bade goes with 4.2% return on shareholder
funds.
Its ironic BLT (BHP Billiton) achieved better than GLEN
despite having Short32 to get people's mouths watering. Although, with GLEN's
trading division and the level of capital intensity required you'd be a fool to
expect the same metrics as Rio/BLT and dare I say it Vale, whom have their own
issues.
Roger asks some very good questions about the reasoning or
underlying issues within GLEN regarding fees, commissions and pay. Perhaps GLEN
was more suited as an unlisted anomaly. Well not for the sellers! It’s
very hard to justify a valuation above 265 pence for GLEN, and that's pushing
it. So over to the analysts to maintain the status quo with targets of 330-360
pence, obviously not for their own money though!
Analysts are left guessing where GLEN will cut its CAPEX.
We'll leave the summary to GLEN, "Responding to the volatile
market backdrop, we comprehensively reviewed the appropriate level of capex for
2015. Originally guided to $7.9 billion, we now expect 2015 total industrial
capex to be in the $6.5-$6.8 billion range, with reduced spend across the broad
portfolio." Coal? Oil? Alternatively OPEX? Marketing? Perhaps
more transparency on the marketing fees and 'associated' costs?
Of course we should end the GLEN commentary on a high note
with the largest LMI (Lonmin) short...the in-specie distribution. How has
the stock performed since GLEN's in-specie announcement 11 Feb 2015? Those two
analysts in RSA (Republic of South Africa) that thought it would be good for
liquidity, with a TP or near 240!
With Mugabe's 91st Celebrations being in the headlines, Mwana Africa (MWA) managed to raise $20M via a bond
issue for the smelter restart from ZIM institutionals. One hopes MWA have
checked the lead times for the equipment they need in for the
smelter reopening in 9 months’ time.
There's a guaranteed uncertainty coming to the politics of
Zimbabwe. It would be sensible to consider this with any investment,
irrespective of the benefits of the commodity (namely Nickel). ZANU
PF (The Zimbabwe African National Union – Patriotic Front) are in
turmoil about who takes over...Even the MDC-T (Movement for
Democratic Change) are becoming soft in their old age and wanting to maintain
the status quo of ZANU PF, lip-service objections?
Copper gossip via Li in China, Zambia are alleged to be
reviewing the overall tax-rate for open-pit mining that has impacted copper production and sentiment on any investments there. After initial
discussions with the operators, Zambia are alleged to be reviewing the 20%
royalty rate to 12-14%, although ahead of the previous 6% welcomed by the
miners.
Zambia have risked their entire industry in the short-term
with the revisions to the Zambian corporate tax and mining royalty regime. With
First Quantum's Sentinel mine coming on stream, they have had to revert to
their lenders to tweak their covenants. The 12% for Vedanta is still far from
positive, and creates risks, despite a recovery in the copper price (currently
2.66/lb)
With Zambia appearing to want to play a hard line on
taxation (at least at the moment) Vedanta (VED) is at real risk of being the
casualty. Its capital and corporate structure drastically need simplifying/clarifying in
order to survive, VED appear have got ahead of itself in the price recovery.
A few super-yachts cancelled today?
Atb Fraser
Atb Fraser
