PM Bolt-On: Nae bad, as the Scotsman would have you believe at BHP Billiton (BLT)...and some. Come on the cheap money, lance it...!

Good Evening,

Due to the asx, one forgot to press publish.

As of last night, the themes were remarkably predictable thanks in part to the S32 interims (Short 32). BLT's expectations and the marked denial were evidenced in the webcast and the consensus. More on this in due course, as a teaser, could there be a capex issue for short32?

BHP Billiton's (BLT) webcast and presentation gave nothing more away that wasn't contained in the year end results. Despite being pressed on BLT’s expectations of commodity prices a number of times, Andrew Mackenzie elected to avoid answering. This has wider implications for those that believe it's down to the analysts to cover those assumptions (dig). Talk about horse and cart scenario, we expect to "do this" but we aren't going to tell the market the prices or assumptions we base these on. Although, notably, their assumptions by EMC estimates are "about the price" now. 

BLT are in a more privileged position than the likes of (Anto-f-ghastly) but not without risks. Not only are they on the lookout for a $6-$10B acquisition (my estimates), but their current gearing/leverage is better than most, albeit could be better (post further writedowns). BLT asserts they are determined to make projects workable/profitable at current prices, rather than the tone of "care and maintenance” other entities have suggested.

There appears to be some irregularities in the CAPEX and guidance given, a near $1.5B  difference in 6 months, which Andrew was pressed on not once but twice. Andrew wanted to take "this offline" to clarify the items. One wonders, whether these "offline discussions" will make it into the public domain, as it has some significance. From $12.5B to the quoted $11B today (for 2015) is concerning. As one analyst questioned, did they simply stop spending for 6 weeks. 

Whatever way the cat is skinned, BLT cannot maintain the dividend commitment without an improvement in cashflow via a) an increase in commodity prices, b) improvement in costs (that are entirely absent of an "all in associated costs basis,” but hey lets ignore this) c) reducing capex, including sustaining capex and finally, d) assuming the sustaining capital costs can be managed at circa $5/t they need to achieve an OPEX of $15/t. We'll be back to this in due course, because one suspects it's overly optimistic.

The elephant in the room went unanswered, namely taxation. Yes, this was ignored by pretty much everyone, taxation liability. BLT announced the woes of taxation only a week ago. If one was to break down the cost per employee, one has to wonder what the level of profitability is for Singapore worker compared to those in Australia. We are of course not suggesting the Australian Government are not considering this (‘onest gov).

Over to BLT, "almost 100 per cent of the profit from the sale of Australian commodities, from mine to customer, is subject to Australian tax – totalling $8.7 billion in taxes and royalties in Australia in the 2014 financial year." Really?...

BLT's figures were better than envisaged (EMC), but below consensus. BLT will have the same currency beneficiation that marginal producers will have to enable an improvement in OPEX costs, albeit with asset writedowns.

Regular readers will note the views here of the FX AUD trades, as the favoured currency play. Although it’s sensible to consider the implications of Saudi Riyal and the U$D peg. Those complacent marginal traders surely don't want another CHF debacle? Do they? 

There couldn't be more noise made about the "simplification premium" if they had tried. However, when pushed on it, one couldn't help but wonder if Andrew/BLT really meant was the ‘board’ has an inability to multitask (& perhaps some analysts). When pushed on it, to expand on the meaning of simplification, it didn't have the same dramatic effect that the term hoped to embrace. In essence, the board got rid of a short (Short32/South32: EMC call), to enable a focus on "three pillars." (EMC term now).

Without wanting to do a pseudo-analysis of the results, it comes down to earnings. These are guaranteed to fall for the next financial year, save for some act of god (Chinese mega-stimulus). BLT’s sensitivity to sustain operating profitability (P+ve cashflow); namely iron ore, oil and copper, doesn't bode well. 

There are challenges to the guidance given today, in light of the current outlook for “the three pillars” (as one cannot mention the other). Quite how the market expects BLT to perform, isn't so much a mystery, but more so reliance on a recovery of the three of the pillars. We’ll ignore the bauxite/Aluminium issues presented by Dupre Analytics, but the significance should at least acknowledged. Hat-tip on some significant work there and one suspect there’s “more to come on other Chinese entities.”

Oil's decline is likely to impact around $1.65B on BLT revenues. The recent decline in steel, metallurgical coal prices and iron ore, will undoubtedly impact. Whether BLT's guidance to their iron ore costs can be achieved is another story.

Rio Tinto's (RIO) is the preferred model, with RIO leading the charge in cash cost terms. Simply, one would be sensible to factor in a cash unit cost of $16.5/t for BLT, rather than the hoped for $15/t. 

The same for the read across on copper, where Rio advised that the second half is expected to be impacted by a decline in grades and water availability (Ref: to Escondida). Although absent from the BLT today and lacking further discussion. Should we stop looking for themes in accounts and just accept what we are told? 

Longer-term, today presents an opportunity assuming there's a telescope looking past the 3.5/7 year cycles and considering the super cycle per se. It was/is an opportunity for sentiment, aided in part by the Chinese Central Bank / PBOC meddling with the liquidity.

The move was an admittance of how bad things have got, with more to come. All expected, whilst avoiding shock and ore, an RRR decline of a further 100-150bp (EMC Estimates) is required. We note the auto-leasing implications, saving the likes of Daimler/VW.

Contrary to some expectations, the EMC has a target price/range of 1350 for BLT based on today's news. If they there are currency movements in the AUD (Aussie Dollar/expected) and the Chilean Peso (CLP/also expected) and USD interest rates, then BLT are set to benefit on an operating cost level basis. For the short-termism, it was rude not to have some "on the news."

If one wants a dividend at the expense of growth (CAPEX) this is the stock. Assuming BLT avoid biting the bullet and acquire an asset in the oil and gas sector, there's limited upside (circa 35%). 

More on ANTO in due course now their cash has gone. Thoughts for the evening - what are the implications for Caterpillar in the current climate. What are the implications for the Chinese “losing their life savings?” This has more weight that most analysts give credit for….analogies to a stalling plane going virtual were made on the morning call. 

Finally, thanks in part to Li, China (the people) want an explanation for their losses. With prices high, wages low, and China aiming for 7%, we have to acknowledge GDP (we’ll call it faux-growth) is now lower. This is evidenced in part by “cheap money” being thrown at the boil, rather than lance it. Come on the cheap money...whoops, not good for Wall Street…

Atb Fraser

Morning Mumble: BHP Billiton (BLT) Production set to increase & South 32's Misnomer

Good Morning,

There's a lot around about BHP Billiton (BLT) this morning. Although some are missing some pertinent elements including BLT's costs. If one cannot produce and sell a product without incurring freight and royalty costs, why are these not included in the cash costs? 

BLT's $16 a tonne is wrongfully considered a pain to the industry. The marginal producers will suffer, that's a given. BLT's total costs are not near $16/t! Without going into details analysis, BLT and RIO's all in cash costs are nearing $35-40/t pending on weather and energy cost movements.  

The commitment to Port Hedland of additional $240M is not to be sniffed at, this isn't included in freight or royalty costs. They have committed to the purchase of additional tugs and a new "tug harbour" to improve the reliability of the port. 

Iron ore will be under further pressure. With most commodities the gap between cost of production and sales price narrows over time. The Chinese are not speculating on Iron Ore, in fact most commodities, this has had a notable effect on commodities prices. 

Although BLT is still increasing to capacity of 290Mtpa and forecast to production of 270Mtpa for 2016. Whether the production increase improves costs (or efficiencies) any more than have already been expressed is another matter. 

Last weeks impact for Onshore US assets $2B and a net loss recorded on the demerger of South32 (Short 32) are now realised. This will be addition to the copper writedowns that appear to be exploration related are not to be sniffed at.

As Rio is slowly being recognised as ex-growth, it may be premature but all the same, BLT is looking like a cash model rather than a growth company. 

The marketing update is worth consideration as there's a glaring significant theme, please not all comparative years and half years. 

Average realised prices(6)	FY14	H1 FY15	H2 FY15	FY15	FY15 vs  FY14	H2 FY15 vs  H2 FY14	H2 FY15 vs H1 FY15
Oil (crude & condensate) (US$/bbl)	102	85	52	68	(33%)	(49%)	(39%)
Natural gas (US$/Mscf)	4.35	4.21	3.29	3.77	(13%)	(33%)	(22%)
US natural gas (US$/Mscf)	4.10	3.89	2.59	3.27	(20%)	(46%)	(33%)
LNG (US$/Mscf)	14.67	13.76	9.40	11.65	(21%)	(36%)	(32%)
Copper (US$/lb)(7)	3.22	2.98	2.61	2.78	(14%)	(16%)	(12%)
Iron ore (US$/wmt, FOB)	103	70	53	61	(41%)	(45%)	(24%)
Hard coking coal (US$/t)	131	110	99	105	(20%)	(18%)	(10%)
Weak coking coal (US$/t)	111	92	85	88	(21%)	(18%)	(8%)
Thermal coal (US$/t)(8)	74	61	56	58	(22%)	(21%)	(8%)
Nickel metal (US$/t)	15,273	16,905	13,688	15,301	0%	(18%)	(19%)

South32 (S32/Short32) quarterly results are today as well, with little mention as BLT have overshadowed their results. This could be a cunning format for hiding crap. 

South 32 were notified by BHP Billiton that non-cash, pre-tax impairments of South32 assets totalling US$1.9 billion were recognised effective 6 May 2015. Largely offsets prior fair value uplift of US$2.1 billion recognised for Australia Manganese and South Africa Manganese. 

A couple of issues here, firstly are S32 not recognising BLT's $2.1B impairment on S32, but more so, if South32 are limiting manganese production because the prices are so dire, then the uplift in valuation should be reversed even more so than the impairment. Perhaps S32 accounts department need to remove their socks before attempting the full year accounts. We'll have to wait until the interims to find the other $200M. 

With all miners rushing to capacity rather than cash efficiency and security of supply, expect significant pressure of caps on commodities. In the absence of some significant casualties, the market is set for lower prices for longer. Oh and the Chinese stimulus...being a risk. 

Something of significance that isn't being widely reported yet, but has started to be unwound after the Government investigation. Speculators would be wise to consider is the unwinding of ETF's back by physical metals in China (Fanya Metal Exchange). This is significant in the REE/REM (Rare Earth Elements/Rare Earth Metals) space, but one should consider 'certain' copper trading houses where some of the investors have had a liquidity issue. 

With an increase in trade disputes on commodities exchanges, at what point does the Chinese Government get involved in these issues. More so with fraudulent trading companies springing up, what are the risks to the market with alleged guaranteed returns on commodities of 50% in a day. 

China had Qingdao issues with Copper financing (ghost financing), that have not only seen a spike in LME / Global warehouse supplies, but more so a reduction in financing for metal trades. Pacorini Metals Asia Pte spike in inventory, across the spectrum of metals is not uncommon globally.

Atb Fraser

Morning Mumble: SHCOMP, A buffet of commodity woes (Short32) and the implications for Alumina Ltd, Rio's Coal, Hargreaves Services (HSP) and SXX the gamble.

Good Morning,

One may require a nice ice-tea or G&T in certain circumstances. 

Trading on the SHCOMP (Shanghai Stock Exchange Composite Index) was volatile, a plunge from opening of near 5% following by gains of some 10% from the low. Closing near the high for the day at 4,277.223. Margins and leverage appear to be the issue, with the drop being covered post the closing of positions. Has the Chinese Government saved the day? 

Remaining short on Amur Minerals (AMC) but also banking considerable profits, this company is over-priced for the stage it’s at, the cash it has, and the economic potential (or lack of) for the asset . Those following the wider story will note how logistics will become a nightmare and funding is of a scale, that even Sirius Minerals (SXX) with decent support and decent geopolitical headwinds, will still have to be very persuasive about.

AMC PEA (Preliminary Economic Assessment) / PFS (Pre-Feasibility Study) suggested the viability isn't for this time, especially as Nickel has limited to no support and volatile. Maybe in years to come, utilising a telescope and some hope for "guidance." The SRK guidance / consensus of future prices was based on a different climate around 8 years ago. The super-cycle may shift such a degree it becomes economic sooner than envisaged, but the odds are currently against that. 

Nickel is currently trading $5.2231-$5.2345/lb and has been as low as $5.11-14/lb overnight. Those aware of the position of Nickel will not be surprised by the moves over the past week. Concerns regarding the limited growth in the very sectors that are the highest users of Nickel. Watch the $5:08/lb.

For those, including some analysts that have a wish to improve their understanding of the sector (present company included), consider the Nickel Institute (Materials and uses), for a brief helicopter view of the commodity. Often giving a better understanding of the market than covering it with "linked to steel demand." Not the greatest month either for South 32 whose woes despite being Short32 are increasing as commodities take a further hit. 

South 32's (S32/Short32) 'portfolio' of assets produce alumina with the Chinese prices still falling and the Australian prices attempting to keep up, aluminium (sub key $0.80/lb at 0.76/lb), coal (enough said), manganese (anti-dumping investigation and sub critical $2 at $1.93/kg, nickel $5.23/lb), silver ($15.7/Oz.), lead (fairly consistent but trading at a crucial support level of 0.80/lb and zinc (consistent trend currently $0.92/lb). Life isn't too great for South32, although its one to play in any whiffs of recovery. 

The market is not ignorant to the Alumina downgrades across the sector, with producers "almost" scaling back production but never getting round to it. The poker face is in-danger of forcing the wheels off the higher leveraged players. The favoured pure play short is Alumina Ltd that mirrors the market woes. Playing the OTC (OTCMKTS: AWCMY) and ASX: AWC. In the absence of a recovery in both the ex-works price for alumina and such a swelling of inventory in the pacific, ASX: AWC will struggle with share support. 

With Mick Davis buying (possibly) Rio's coal assets (FT), the Yorkshire Post highlights the industry woes where the Hatfield Colliery is closing. This was expected, but the timing has been brought forward by a year or so. The government is unlikely to offer support despite it being tabled in the commons.

Mick's timing is likely to be very well orchestrated. Having sat on his hands and refused to pay anywhere near the expectations of the industry, could RIO's capex needs force their hands with their thermal coal operations. Alternatively, Mick could buy S32 once it's been giving a thorough kicking by the market for being "unfortunately" aligned to the downward cycle of commodities.  

Perhaps time to review Hargreaves Services (HSP), having closed again recently, with Net Assets Circa £150M and net debt around £20M. The company is now priced towards the top end of any valuation, but more than likely nearing the bottom than of this massive drop. With the sentiment in the coal sector and the decision by major investors/funds to avoid any exposure, the stocks have been punished. 

Yesterday was the last opportunity to dump the warrants in Sirius Minerals (SXX) ahead of the committee meeting today. With the stock suspended today awaiting the announcement it's D-Day. With the no person wishing to appear the guilty party, from a psychological perspective on is betting on a deferral to the Secretary of State. 

Having taken profit the outcome is immaterial, the speculators have scope for considerable gains but not without risks. 3 pence circa on refusal. 5 pence on deferral, 38 pence on approval (guesstimates). With an 85% probability of approval/deferral, it shall be interesting! 

The eyes are on Gold at the moment for a place of safety. With dwindling demand and reducing supply in the current climate, it’s that favourite sport of kick the higher cost producers. Tungsten's brief recovery has ended with a damp squid at $217/MTU.

No time to fully cover Obtala Resources' (OBT) final results, with the over-expectation becoming a disappointing reality with this stock, expect further selling after a period of hope. Returns and cashflow are key and in the absence of guidance of earnings, revenues any speculation is limited to hope. Perhaps one for those brave folk that can convince themselves the returns on assets of circa £100M are favourable. Quite how investors are meant to buy a stock with little guidance for an agricultural business also in timber? 

Atb Fraser

Morning Mumble: BHP's South32 (Short32) allegedly less debt & BLT favours, yeah right! Rio's SP10 *(No Sun-protection) and ANTO.

Good Morning, 

There appears to be a lot of misinformation surrounding South32 in the press, where the journos need to take their socks off. There's no way in the world BLT could have loaded Short32 with any more debt, without significant risk to its debt rating and/or higher borrowing costs. Worse, the press have ignored the level at which BLT would have created a defaulting structure that would breach the legal requirements of corporate governance. 

The press ignore the fact that BLT have to ensure that South32/Short32 must be able to operate as a going concern. The commentators prefer to 'believe' that BLT are doing Short32 a favour by reducing the debt. When the sums of the liabilities are put to a total, they are in fact higher, merely labelled differently. 

For those not wishing to split-hairs, the liabilities are higher than 'consensus' with rehabilitation and closure ($1.5B and that may be circa 15-17% on the low side) plus debt of $674M, taking the liabilities and debt to $2.174B, with a $1.5b revolving credit facility being made available. When one considers the on-going liabilities, excluding those clearly labelled debt, its going to make leveraging (without dilution/equity raise) for any acquisitions very difficult, irrespective of the alleged financial prudence attached. Let’s see how the dividend policy goes. 

BLT define South32, as having high quality metals that will be a cash generator, that allegedly the "larger investors" welcome. We'll ignore the volatility of the entire asset class, with a cursory prompt for readers to check the price movements of aluminium recently, manganese is under pressure and coal is not without its significant woes; not so enticing when put in context. Of course Short32's dividend policy will entice the low risk miss-believers into acquiring the stock. 

 

With Manganese, Silver, Lead, Zinc and Alumina making up near 38.6% of Short32’s EBITDA, Short32 may benefit from the Bauxite supply issues thanks to Indonesia's unprocessed ore ban, and declining stocks of Aluminium/Bauxite and Alumina, but how have silver, lead and zinc performed? With any further slowdown in China, don't expect too much in the way of price appreciation, more so a levelling out of both Nickel and Aluminium.  

Staying with mining, and an indicator of the state of the market, Rio yesterday put a tender out for a cargo of high alumina SP10 iron ore cargo. Suffice to say this cargo has had limited interest. The Chinese simply are not prepared to take it without a huge discount, in fact, many aren't/weren't prepared to accept it. 

Higher alumina (circa 3.5%+) content in iron ore causes the slag to become 'rather' fluid during the steel-making process. Processors can be blend the higher grades with lower grade. Simply put, pollution/environmental regulations restrict these deals and limit the price. 5 years ago, some savvy traders would have combined the deal with some low alumina ore from Vale, blended it and made a profit. In today’s commodity cycle, it’s simply not worth the effort or time for most, without a decent discount circa 10%+

Antofagasta (ANTO) have surprised the market with worse than expected preliminary results (2014). We'll save the readers from obtaining an accountancy degree and wade through the waffle in machine gun like fashion. Copper prices down near 14%+ on the corresponding period, taxation in Chile up (it’s only been in force since 1st October 2014/PWC did a very good peace around this time). With margins under pressure and desalination likely to increase costs per pound, what were the markets hoping for today? Simply put, if the investors haven't already priced in lower expectation, they should be from now one in, but all is not lost! 

ANTO's Los Pelambres issues will have an impact on the next set of accounts. With a trending reduction in oil/energy costs, ANTO only managed a cash costs before by-product credits at $1.83/lb, a modest were 2.2% higher than the previous year despite a decline peso. These costs will grow as the wage deals / salary increases kick in over the next 4 years and the declines post reporting period in the copper price.

On a positive, any weakness in the Peso will benefit the reporting cash costs and CAPEX/OPEX expenditure with net cash costs, including by-product credits being a healthy $1.43/lb. The potential upside from Antucoya, Encuentro Oxides and Centinela should not be ignored.  One might just start to turn positive on ANTO with its cash costs being an envy, save for any more radicalisation and issues at Los Pelambres (and the El Mauro tailings dam). The reoccurring theme of grades should not be ignored though but better than management guidance, nor for every 1% movement in the PESO (CLP), it equates to $0.0075 cents P+ve/N-ve to production costs at the current USD Vs.CLP (Chilean Peso).

Unnecessary cheer at Lonmin (LMI) with the appointment of COO Ben Moolman and Bowleven (BLVN) finally have the cash in the bank. The market "may" just re-rate the company, albeit past performance and sector/industry woes will hinder any blue skies beliefs. Juridica Investments (JIL) disappointing the market for no particular reason with their final results. A long-term hold with some very good dividends so far, illiquid so one for the traders as well!

Atb Fraser

Morning Mumble: REM's Desperation & Writedowns lost in the GLEN. Copper Gossip & Spain 2.0.

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

Morning Mumble: Was the PM Add of 23/02/15: LGO predictable including the debt ++Plus the de-constructed hopes of the BLT Sandwich

Good Morning,

Many thanks for the enquiries why there has not been comments but it’s simply put, work is very busy with some work for those entities looking to profit from shorters, the white knights. Fear not, there were no cuts or bruises and thank you to certain parties for those mad enough to allow the Ninja known as my daughter tearing up your office whilst in meetings. 

LGO Energy (LGO) had the appointment of a joint broker on 5 January 2015, EMC: LGO Energy. Although not much of a short its always nice to pick on these eventualities that are more certain such as certain entities companies contradict contradicting their "cashflow" forecasts and debt arrangements and whilst raising and raising, and...You get the idea. Today, there is the issue of equity and oil swap arrangement with BNP. Today's news makes it wise to close the shorts on LGO.

The arrangement may be positive for LGO longer term, but if one looks back at the placing etc. There are material risks investors should not ignore including the "revenue per barrel of the Spanish assets all those years ago". LGO is in the same basket as Victoria Oil & Gas (VOG), where the management decisions come with certain risks that can have a material impact on the value of a holding. Although the SP held up better than envisaged with every man and his dog working out the obvious. (Link relevant twice today EMC: JRG + LGO Placing (history repeating itself))

Had Anglo Pacific (APF) been proactive with their investor relations they would have announced to the market that Largo Resources (TSX: LGO) received a non-binding indicative term sheet from its consortium of lenders (Largo link). TSX: LGO are hoping, subject to committee approval, to defer its debt amortization schedule and extend the maturities for its construction debt facility and its export credit facilities for its Maracás Menchen Mine. 

TSX: LGO give an update on the progress and the asset for investors that like layman's terms. The market should now be accustomed to the poor updates as shown with Isua Project in Greenland (EMC: Isua). APF will obviously be busy hunting a transformational top quality coal royalty to be bothered about something they paid $22M only 8/9 months ago. So for those holders unable to gain anything useful you read it above in the Largo link. 

BLT (BHP Billiton), with Andrew Mackenzie (CEO) opening his 2015 Interim Results Presentation by raising his arms to demonstrate how comfortable he is with the results. The market is going to like the interims. South32 (Known here as short32) demerger remains on track to be completed in the first half of the 2015 calendar year. 

Net debt was higher than EMC considered by circa $500M but negligible in the grand scheme of things. Post a few items needed more urgently its maybe wise to revisit BLT. Returns are lousy in % terms of capital applied, but the market ignores such things, so like Rio, over to the bulls to assist the sensible in making decent intraday gains. Copper (circa 11 mins in) within BLT suffered the same woes as most of the industry with energy inc. water and grades being lower. Despite lower prices BLT have done better than expect. Iron Ore update (circa 13 mins in)...too much to cover in such a short time.

Just Retirement Group (JRG) being a trade EMC: JRG + LGO Placing (history repeating itself). Comedy on the OPEC Emergency beliefs at these prices, investors and analysts should not read too much into "news" that contradict what statements have been made in the past. 

Atb Fraser

Morning Mumble: Potential Manflu but more operational than some miners!

Good Morning, 

There's a spate of potential manflu which I appear to have caught from my daughter! So having been up most of the night with her one doesn't expect much activity today bar essential items. Staying with the theme of manflu it appears we had yesterday’s South32 announcement from BLT (BHP Billiton). The reasoning for the name is not because it gives a good indication of which way the share price is expected to go but because most of the assets are in the southern hemisphere. No doubt contradicting those with common-sense for some time as people position themselves. 

Yesterday also saw the announcement of LMI's Number One Furnace leaking molten furnace matte. For the regular followers of Lonmin (LMI), one hopes this isn't chrome related for saying that LMI have historic grandfather rights to ConRoast (owned by JLP for 10 years) why didn't they make improvements last time? So with cash costs likely to shoot up and net borrowing to increase (anyone's guess on the final figure) will there be the requirement for another rights issue? One assumes they won't be asking the International Finance Corporation for $100M. Quite how LMI will come up with a resolution to mitigate these issues shall be interesting. 

Today's announcement came as no surprise for the FitBug placing the disappointment was I lost out on a bet by a mere 12 hours. The loan conversion looks to be creating an overhang as well with anything above 1.5 pence being in the money. 

Rambler Metals (RMM) inform us of a reoccurring theme that continues with a decline in grade and revenue. With these sort of returns the case for a management change are increasing. RMM's measurements of earnings per share are dire the drop in grades and absence of disclosure of the grades sums things up. The denial contingent will state things can only get better...

Tesco's (TSCO) came out today with some a material statement which pending on demands will come back to in due course. With no position either way, it's certainly an indicator of how competitive the market is currently. Make this year count, next year's Christmas could well be 25% more expensive, so get the elastic waist expander and utilise those cheap track suit bottoms. 

Gold and silver have lost all energy recently after some serious swings the trading implies no one wants to hold a position long, up in NY, down in Asia and back up in London. It would appear a few Australian's had a slap of common-sense and finally got out of Atlas Iron last night. Those knife catchers reading Bloomberg wished they'd ignored Atlas Iron Offers Cheapest Bet on Ore’s Rebound: Real M&A. It makes you wonder what the position of Baosteel Group Corp (Chinese Steel producer) is. Tony Poli must be thankful of the deal earlier in the year, perhaps one of the best deals of the year. 

With Chinese import data out on Sunday, China's Nov iron ore imports hit second lowest this year on Sunday it was no surprise where the bets were. The figures I'm reliably informed have lead (I known!) to a lot of late night work for a few analysts to review their opinion of Rio/BLT. One hopes their figures are better than mine save for a GLEN bid which would be madness and my view is unaffordable. Next stop for Rio is said to be 2600...

So much to cover and so little time, this morning it was the day to close my Afren shorts with a view (no specific timeframe) to buy the equity with the short profits. Afren, despite its positives, is a lesson on when to take a loss sell and short. For those learning the arts of the dark side (as one chap calls it) Afren is perfect example of when to change the shorter-term opinion and get in there.

Atb Fraser