Good Morning,
China's unemployment figures are on the rise. It’s an open secret
that people are out of work or 'job sharing' until they find something else.
With the change in school rules for migrant workers in municipals it’s harder a
choice for families. Left with a choice sending children back to the country
for education, where often there's little resources or educating privately.
With amusement, both the SHCOMP (currently 3,803.4600)
and SZCOMP (2062.8640) are holding steady. The only buyers appear to be those
with Government funds or backing. The news is all positive for the likes of
media with little mention of anything regarding a "contraction of
liquidity" of any form. China have got a rare opportunity to blame the
lack of GDP growth on the stockmarket manipulation causing a slowdown, the
seeds are already being sown.
We had some significant news out with BHP Billiton's (BLT)
write-down after the onshore
asset review and today's Rio Tinto's (RIO) Q2
operations update/review. BLT's review will be bite-sized, for the
market to ignore the greater woes. The onshore asset review should have been
announced on the 25th August (date for diary) with all the "others."
However, the market shall carry on obliviously ignorant to what will not be a
pretty review. Save of course for a remarkable uptick in commodities.
Rio on the other hand have forgotten to mention to the
market about near 14% increase in copper production costs. Due to molybdenum (Mo) having a serious
decline since January of epic proportions any by-product cash cost credits are
limited. One would have a thought with Mo being of such
a benefit to the bottom line costs of copper via by-product credits,
they'd have given Mo a cursory mention. Antofagasta are not absent of these
woes, making up near the same Mo by-product benefit to cash costs. Can it
be viable to produce MO at the current prices?
Rio also had revisions to guidance for Iron Ore (weather
related), Uranium (decline grades) and titanium dioxide slag. With Energy
Resources of Australia’s (ASX: ERA) lower mill head grade and recovery
impacting on processed ore, it’s not the only problem there with a writedown
expected in the interims. Rössing’s grades are recovering from comparative
quarter weakness, but being in Namibia there’s no mention of taxation woes at a
corporate level.
One could argue it was in Rio’s interests to not “force” the
weather, supporting some sensibility in iron ore prices. Things are not going
well at Bingham (EMC:
Bingham) Over to Rio,
Kennecott Utah Copper
Mined copper
production for the first half was significantly lower than the same period of
2014 due to the current focus on de-weighting and de-watering the east wall of
Bingham Canyon which is expected to continue in the second half.
Lower mine production,
partly mitigated by a drawdown of inventory, resulted in first half refined
production being significantly lower than in the same period of 2014. To
optimise smelter utilisation Kennecott continues to toll third party
concentrate, with 166 thousand tonnes of concentrate received and smelted in
the first half. This is excluded from reported production figures.
There’s also no mention of a possible insurance claim in
respect of Bingham…Escondida (Chile) is also suffering from water
availability and which will be made worse by the decline in grades. Will Rio be
forced into using desalination and what are the impacts for Iodine producers?
Piping water from the coast could be costly. All dwarfed in-part by the ramp up
at Oyu Tolgoi which as always raises the question of when Rio will take out
Turquoise Hill Resources (TSX: TRQ).
Rio should have a rerating here, based on cashflow rather
than the aspirations of a growing super-mining, now under-review. Limited
upside of growth, more so evidence of a cashflow star that the market, if they
have to hug one stock may be wise to do so with Rio? Under-review.
We have had Iofina (IOF) offer up another smoke and mirrors
piece to the market with a Corporate
& Trading Update. Is it beyond sensibility why the shareholders were not updated on the cash position of the
company? EMC:
Iofina Cashflow absent. Over to Iofina, The
Board is delighted to report that the Company was EBITDA positive in H1 2015.
The company has debt, whether they’re supportive or not, any hope of the
convertible element kicking in is but a mere distant memory.
Likewise, IOF debt holders will want a ‘sweetener’ in the
event of any debt renegotiations.
Whether this company is scaling up is immaterial to the cash balance.
Ironically, having spoken with Hugo, the technical wizard believes Iofina could
see some upward pressure but too early to say, personally I don’t think so.
If one applies a sensible correlation between a different
sector, say Iron Ore with comparatives between Atlas Iron (ASX: AGO) (as
Iofina) and Rio Tinto (Rio) as (Sociedad Química y Minera/NYSE: SQM), its easy
to explain the iodine price woes. With producers having rushed into the space
and global demand declining, it’s no wonder Iodine has performed like it has
(almost identical to iron Ore).
Iofina, having been a favoured play here, selling £2+, is
now a leveraged model on Iodine. In the absence of any improvements in Iodine
prices or sales by IOF, expect an identical replica to Atlas. The only caveat
being the event risk of SQM et al seeing some longer potential for the IOF tech.
Although, considering the peak demand in Japan post Fukushima, the market
didn’t get the continued return they had hoped for in pricing.
Ironically, a chap noticed whilst in Japan when iodine
prices increased significantly, consumers switched to seaweed. Although this
won’t explain the large decline in price on its own, it rather does make one consider
the alternative risks, same for televisions.
There is a question about why Peter Earl resigned,
and left with ‘an asset’ that was meant to improve the global footprint of
Rurelec but now “spun out” to save costs. The AGM announcement was insulting
left until 4:30pm despite it taking place at 10:30am in the day. Perhaps Colin
Emson needed to find the password? If you’re still a holder, perhaps it’s time
to revisit your investing values?
Anglo American’s (AAL) Q2
Production Report makes for a compelling read of the realities facing the
company, with write-downs now expected in the interims. Sadly for Anglo there were
insufficient positives to make the proverbial “sandwich” of good news, bad
news, and good news.
With AAL now stretching the facts to consider their
situation unique to one annus horribilis. If ever there was a cursory reminder
of crap. Simply, there is no reason
whatsoever why I should change my view from 2011. Despite challenges to my
view point over near four years, this company is in need of a complete corporate
overhaul.
Investors would be wise to apply a barge pole unless they
enjoy a gambling like thrill on AAL. The two positives are marred with bad
news, platinum being compared to a previous strike quarter and thermal coal
prices on decline (post Japanese contract settlements). Had there been time,
AAL’s news is worthy of a biblical length comment on the woes of all
operations. Over to the city, to now realise the train-wreck…no doubt totally
ignored one cannot turn a blind eye for ever.
Like Rio Tinto, Anglo are suffering the water shortages woes
now (in Los Bronces) where water managing is becoming a skill. Overall made
worse by the “speed” (stability restrictions) places on Collahuasi avoid
vibrations on two processing lines.
Water appears to be the norm for operating in environments
where there is an ambundance of copper. To keep it simple, whether Anglo’s production
is in line with guidance or not, production declines will not be helpful whilst
commodity prices are under pressure. Any one would think Anglo were writing the
news for a “bull cycle” of commodity super prices.
On a more positive note, EMED Mining (EMED) finally got their
municipal
activity licence. With production due end of Q3 2015, EMED should have some
form of rerating. One disappointing factor for EMED will be their profit. Since
overcoming significant hurdles to develop Proyecto Riotinto, it’s unlikely the
current copper price will have an impact on the viability. What may do is any “leverage”
that may be considered. Having been a buyer until recently, there’s some decent
potential, but do not get too carried away with expectation.
A very interesting meeting with a plant engineer whom knows
about Wolf Minerals (WLFE) and the plant they’re using. In order to save a few $$ they
elected to go for a different kit which would not only reduce costs but also
improve efficiencies.
Normal service perhaps next week! Poor old Petroceltic (PCI),
where Worldview there appears to be a repeat of recent events. Are Worldview
intent on damage the company to the point it becomes uninvestable then buy it
on the cheap? Surely not…
Luckily for Zincox (ZOX) the SP rose sufficiently to lock in
a few punters with a
placing that’s allegedly going to
improve performance. Previously it was coating the inner shells of the heat
exchanger, now its debottlenecking supply and replacing said heat exchangers.
What is of concern is the “lack of domestic EAFD (Electric Arc Furnace Dust)
that might just be essential to operations!
What ZOX responsibly mentions is the critical need
of the EAFD. With a rise in Zinc prices likely with a contraction in supply,
how are ZOX going to manage this. Crucial, the competition for EAFD has not “hotted”
up yet, but will do towards the end of the year and ZOX already cannot manage
supply. So how are they going to cope with increased competition?
More so, with the woes of the heat exchangers they’re now
replacing them. Please note the utilisation of the word “troublesome equipment” within the RNS. With an absence of EAFD,
how are ZOX going to convince third party funders of the “future” potential.
Either this company is totally under-priced or the realities
of ZOX’s promises are telling a different story. Within the RNS there’s hopes
for $40M EBITDA plant with an inference that the mechanics of the RCF
process/plant is proven. Strangely similar to other companies able to “demonstrate”
a proven technique. With support likely around the 12 pence market until a
joint venture in conjunction with bank financing?
The question of the week, how much floating storage do Iran
have….
Atb Fraser
