Morning Mumble: Nickel & Randgold hunt...with not so strategic natural resources boom boom!

Speculation, or should it be called "factualisation" of the growing imbalance between the demand of Nickel and its supply. Contrary to the assertions by the press that are writing 'reactively' to the events unfolding, the speculators did not get involved fully to the realities of Nickel until last week. The price was purely increasing on a physical need and panic about limited supply. Speculators, hedgies et al, were slow to react the growing realities and aided the run significantly.

Oneis watching the significance if Nickel stays above $21318/t and the Chinese trade data later today that will, if negative create a short-term coverage of positions. The stark reality is that China, requiring Nickel in large amounts around September was forced to step into the Market. Chinese supplies are running low, with the contract season just gone in China, the surge was predictable. The Question is, will the Chinese hedge by buy their Nickel in the run or await some cooling. Logics dictate they're in the fray and will have to acquire, China has the low levels of Nickel reserves now, having stocked up in readiness for the Indonesian ban. 

This afternoon's LME session will be very interesting...for the sad so and so's like me.

One thing that Roger Bade picked up on (Randgold chair mulls takeover deals in Africa) that I have been building a position in is Amara Mining (AMA) meeting the criteria for Randgold's Acquisition Trail. Remember Randgold has just had a change at the top with Philippe Lietard replacing Christopher Coleman. He's looking at cash needy small caps with decent assets. This is nothing new Mark Bristow @Mines& Money (December 2013) outlined what Randgold was looking for but its positive that both parties are singing from the same hymn sheet. 

So have a look at the Mark Bristow Randgold Resources Presentation (slide 15 for the idol folks)

So in considering Randgold, then consider Amara Mining's Technical from the 1st May 2014 Report (highlights below), which rather sums up the case and gives a view for me that the stock is worth 28 pence+ and potentially, up to Roger's circa doubling of the stock. One awaits the market to wake up and realise...

• Post-tax IRR of 33% at a gold price of US$1,250 per ounce
• Post-tax Net Present Value ("NPV") of US$613 million at a gold price of US$1,250 per ounce and a discount rate of 8%
• Strong returns at lower gold prices with post-tax IRR of 25% and NPV of US$388 million at US$1,100        per ounce
• Average annual production remains strong at 279,000 ounces over a 10 year initial life of mine ("LOM")
• 6.5Mtpa scenario is based on an US$800 per ounce pit design with an average head grade of 1.53g/t, a       10% increase on the 8Mtpa scenario
• LOM average total cash costs (including royalties and refining) of US$594 per ounce, a 9% decrease on the 8Mtpa scenario
• All-in sustaining cash costs of US$624 per ounce, a 10% decrease on the 8Mtpa scenario
• Plant and infrastructure capital cost of US$244 million, with a contingency of US$37 million and an additional US$75 million for an owner-operated mining fleet - a 13% decrease on the total pre-production capital cost of the 8Mtpa scenario
• Rapid total payback period of 2.6 years
• Amara is fully funded to deliver a Pre-Feasibility Study ("PFS") for Yaoure in Q1 2015, following the successful placing and open offer in March 2014, which raised US$30.5 million, with in-fill drilling now underway.

So logically it fits, the question now is, does Randgold want it...there's no rush as they had a placing for $30M 2 months ago for AMA, which in fairness wasn't at much of a discount (pending on which graph you select) but more so was above the current SP. The case is more than probable on the bases that Yaoure will deliver the PFS by Q1 2015 (9months ish away) and Randgold's need to look for more developed asset or risk losing yet more of if its unjustifiable premium. 

Tissues may be required at Strategic Natural Resources today, with the fund raises that allegedly is good news for the company. For those interested in following the limping horse: Strategic Natural Subscription and board changes. Further pain is to come with yet more financing required...anyone for a highest convertible bond, with warrants? GKP holders should watch just to make themselves feel better...

Fox Marble, may however have some realisms priced into/out of their price with the AMG Statement which doesn't bode well for a 'darling'. Fox Marble AGM Statement.

The final thought goes to the debate about selling into the rise on FPM Faroe Petroluem and holding tight, I elected the Widow's and Orphan's approach of selling into it, whilst the "Dr Livingstone" elected to hold for the black gold. He will never learn...

Atb Fraser

Morning Mumble Par Deux: Superdive because of China or the realities?

For those following the ASOS (ASC), Super[dive]group (SGP) and Boohoo sagas, should be well aware Supergroup has been a blatant short. Supergroup's Interim Management Statement was a miss...a clear miss, but whom is out of the money? Both down as there no doubt in part as a result of the over expectations that were priced wrongly priced in, including some silly targets on ASC and SGP.

Certain analysts need a reality check, obviously these price targets will be 'under review' in light of the Chinese Premier President Xi Jinping’s, words over the weekend. The Chinese position is not unexpected, the main indicator was the reaction of iron ore near 6 weeks ago, giving a signal to what is coming. The trade figures, gave some support to iron ore, but the consensus is right that the price is set for a drop. 

The Chinese Government may have to change track again, surely a few more railways to 'nowhere' will assist this...More importantly the Chinese expansion and realities of lower expectations are setting in…

Over to the Australian Dollar to weaken further...going out to £1 Vs. AU$2 is surely more valid in light of the change in the global environment. Considering: Get used to slower growth, Xi Jinping says amid weakening China trade figures (South China Morning Post Article)

Perhaps D will publish his thoughts on WANDisco as well, they were very valid, but would have been costly until the trend changed, which was confirmed around 1150/1100. All the same a nice sport…

Atb Fraser

Morning Mumble: This Month China On Russia Off = NIckel Wins & Diamonds where's the Dividend!

Well it appears over in Asia the markets they were aligning themselves with China "now" (read as currently) not being as bad as people thought, so in they popped on Chinese stocks, dropped Russian/Ukrainian exposed (belatedly) and ran for metals. Iron Ore even got some support, despite the obvious happening in the Steel Mills. It seems a prudent time not to bail out the Mills on the basis that it will 'naturally' remove any slack and higher polluting operators. 

Nickel is now in speculation mode with momentum over the weekend pushing the price near 5% higher, and benefiting the likes of Vale, Glencore, BLT and even ANGLO will benefit, (Vale being in number two spot to Norilsk Nickel). I've elected to exclude Norilsk on a temporary basis due to the Russian / Ukraine debacle, not just because of the booing at the Eurovision!) The world has gone mad, but I dare say that's a conversation for a differently focussed blog on 'Eurovision' winners. 

Friday enabled me to have a good session with Dr Livingstone (Ian with no Doctorate) about his recent antics and his alleged return to blogging? I've heard it all when one needs a week "to catch up". Alas, Saturday was recovering due to the excesses of the night before, whereby Livingstone did not surface till near 4pm, due to a slight bit of 'jet lag' strangely sounding like a hangover.

What is interesting is BNP have caught on that the basics of supply and demand I discussed some 5-6 months back (and more) in respect of Nickel are now occurring. Often parties are so focus on one they miss the other, which was the reasoning for building various positions in Nickel in the first place. BNP noting that supply is often a greater driver than demand, albeit with demand positive and supply down there's only one train until news of Indonesia 'going' soft in the interim. Surely miners can't just stockpile for 2+years in Indonesia and will have to mothball?

The momentum traders and speculators are finally in Nickel over the weekend with no reason for the run bar speculation. The price rises up to Friday were purely physical demand, which would have historically dropped off a little. Nickel is now a hoarders dream, stash, go long on it and hold it dear, the tighter held, the quicker $30k/t will be made, after running through the 20k/t mark, or 9$/lb for those in older monies. Its 'almost' guaranteed Nickel will test $13'lb and potentially $15'lbs, with some volatility along the way (common-sense). The move on the weekend added $100M to Glen's profits going forward over the weekend on top of the recent gains. One assumes they aren't exposed to too many forward sales agreements between $7-8/lb?

Already one company is running with the bulls, QCG Resources are rushing to the market with an IPO based on their Avebury mine in Tasmania (NIckel). Personally, why China's Minmetals subsidary MMG selling Avebury it beggars belief but kudos to QCG, the stock, if "IPO'd quick enough" should bode well in the current climate. One couldn't have time it better with Indonesia's ban, the Russian issue and demand pushing any likely surplus in the market back to 2018 at the earliest it bodes well for prices and trades. Long Long Long!

Gem Diamonds came out today with a very positive Interim Management Statement. With cashflow and cash at bank improving mainly thanks to the Letšeng dividend. Sadly the market was expecting the magic word 'dividend' which never came forth in the IMS. My figures show GEMD could have afforded 5.5pence a share dividend. This would have certainly provided some "motivation" for the stock. In addition to the likely benefits of Ghaghoo  coming online as they've 'finally' hit Kimberlite in Botswana. One awaits the "joyous news on production ramping up H2 of this year (subject to the Cameroon sand playing ball with their access pit). Ghaghoo’s progress and ‘being on schedule’ was further validation of rewarding holders with a 5p divi! Alas, perhaps the Management will do a ‘special’ announcement.

I have been short on Anglo Pacfic (APF) despite being favoured by an analyst I have respect for who's rather shrewd/open. Having been short since November the company’s Interim management statement  is starting to make me thing the bottom is near. The dividend should provide some assistance, but their over positiveness on Coal made me to think negatively on the company for quite some time, so with closing positions I will bide my time before/if going long. 

Being in the monies on LGO, Leni Oil & Gas, I'm not sure what the additional noise in the RNS today was about bar a drilling update. However one chap has a conspiracy theory that its to get as many announcements out to push the legal debacle out of sight (really?!? Surely not!) The announcement is a positive, but I reiterate I do not hold this stock because of management only the asset(s). LGO's Production and Drilling Update Trinidad. 

Finally, the money printing is going on for the shorters on Blur, the company were so kind to the satans of the stockmarket (us shorters), to give us advance warning to go short. On the 17th April 2014, in Blur's trading update and Notice of Results announced that a "more conservative and prudent approach to revenue recognition." What took the market so long between then and today's announcement for investors to realise, trading update to realise cash would be required and more importantly recognised profits would be lower? Good luck to Singer N+1 in raising the cash required. Convertible loans well in the money? Discounted (even more so) placing? One will await the news before shutting any position..kleenex may be required for those long!...WANDisco continuing its fall, D, you were merely 6 months too early.

Atb Fraser

Morning Mumble: Supergroup (SGP) the performance echo(or lack of in mini version due to time constraints), Zanaga Iron Ore (ZOIC) Project Feasibility Study Results.

Chaos this morning was greeted with my retail shorts for which they have performed remarkably well. 

Mothercare (MTC) unsurprisingly being kicked yet again and strangley analysts and the like are now suggesting it's bad times ahead. Well unsurprisingly its been bad for a long time, and will be for the forseeable future unless things change, the liabilities and performance (the rot) are becoming overwhelming. At their last update in January the guidance was revised and no further drops have been evidenced.

Mothercare the brand, is being devalued by a lack of investment in it. Forget the noise about the debt and the trading, as this is secondary to brand (company) value. For sometime now I have positioned myself as an amateur expert in footfall (getting Comet's collapse correct, Halford's increases, Curry's wonders and the Supermarkets "lack of expansion.") So without blowing smoke up my own proverbial, its with no surprise that Mothercare scare stories are doing the rounds (so belatedly its dire!). It was whilst having a drink that I realised Mothercare is what Jessops was, the place to test out the kit before buying online. The consumer will pay for this later, by their incessant belief and insistence that the price is the be all and end all; but we'll ignore that for now as consumers will be over a barrel in a few years. 

Mothercare's woes mean that the possibility of a premium take out are limited or perhaps the word is non existant. The stores have value, which as it stands are perhaps the only asset. There's got to be a cash call on the way or lights out, purely on the basis that shareholders are unlikely to ever see a return on the current model. The market should be looking for a change in its strategy to push the brand, how they will do this is limited by the lack of ability to take risks from a top down approach and innovate their customers. Their scale is not being utilised in their pricing nor is it of benefit to the financial structure either. For that reason, Mothercare needs to persuade a giant to take them on, refurb more than just the stores and close the underperforming, sadly for the longs this price cannot be justified at anything above 98 pence and that's excluding the potential rights issue for £35M needed sooner or later at 85pence if they get it away sooner rather than later. One shall await the 22nd May 2014 for MTC to enlighten the market...

SuperGroup’s results are strangely identical to May 2012 in terms of disappointment, I’m sure the analysts will see more positives than I. In light of ASOS’s moves and lack of target achievements it comes as no surprise SuperGroup’s Market expectations were clearly higher than the results!

Zanaga Iron Ore Project Feasibility Study Results (ZOIC) (as Leggie pointed out) has announced the Feasibility Results. 

The ZOIC have you believe that Glencore (GLEN) are going to take out Zanaga at NAV? Surely one would have included the NAV within the Feasibility Study in order to give the Shareholders some cheer? So ignoring the fact its in the Congo (for which I now know better having been shipping Pork Semi-Meaty Pork Ribblets to Matadi for some time (long-story).

A blended return between Stage one and two infers an Internal rate of return around 15%, or specific to stage one of 12.7%. To be honest, I can’t see GLEN getting excited about that, then again I could be proven wrong (but I doubt it!). So initially ZIOC was a $7.5 billion 30mtpa operation, that wasn’t that great either. However they’ve finally worked out that cashflow could fund a proportion of this, so it’s with NO SURPRISE whatsoever there’s a two stage development, and potentially three stages if one was to be picky. They’ve reduced the development costs to a ‘modest” $4.7 billion. The main benefit for ZOIC is the premium grade pellets its suggesting is achievable, although its only suggested 2mt’s have been identified as DSO, one will be left to wonder whether that’s per annum or one off…

With GLEN busy with Mauritania and looking for nearer term cashflows, one cannot help but wonder if a fresh (greenfield) development is likely. One could argue that GLEN could sit there for ever and a day and merely bide their time. A criticism for today is there’s no assumed tax rate, nor does the Internal Rate of Return go far enough to suggest whether its including tax, afterall they included Royalties so why not specify the taxation? When someone realises, even an Amateur likes me needs the basic yet significant detail of “taxation included in the announcement.”

GLEN’s deals in Mauritania with Société Nationale Industrielle et Minière (SMIN) are years away…2022 by my estimated (albeit a positive for pipeline). The poignant element is that life does not bode well for ZOIC when Ivan Glasenberg highlights GLEN wants to focus on Brownfield sites, something ZOIC’s Mine is not…shareholders in ZOIC may have to be patient for their deal with GLEN…how patient? Who gives first Mauritania Government on Taxation or ZIOC on NAV?

The final thought on ZOIC / GLEN goes to the agreement, someone remind me of the terms having not read them for awhile, but if I’m correct GLEN are only commited to funding ZOIC up to the Feasibility Study? However GLEN do need to trade commodities as well, perhaps a different angle to the Zanaga Project is to be able to trade the supply, after all, as a major would you sell GLEN stock to impact on the price?

BT Group (BT.A) Final Results come in nicely and money for old rope for us longs!

Morrisons (MRW) need a saviour, will that bottle of Gin be mine Leggie! Surely the management and a few family members haven’t had more meetings with a PE firm have they? It would be pure speculation to suggest MRW’s “time to be taken out is now or never.”  

Uranium: Woeful low, the long positions must now being torched as houses/banks dump stock to monetise ‘something’. One holder had no choice but to ditch or pay dearly, not that they haven’t already, why someone would assume such large positions at $40 a lb without considering the slow journey down and back up beggers belief. I suspect that trader is now relegated to sharpening pencils albeit on a guaranteed bonus! If parties remember my belief about not buying into Uranium producers with costs above $22/lb, you’ll now see why.

Sadly I haven’t got time for the Aluminium impact, Randgold’s positives but a sell nor a Goodbye to Eastern Platinum thankfully delisting which is delightfully entitled Miscellaneous high priority announcements. I would like to thank the Board and the holders for one of the most obvious short plays in the last year in the Platinum Sector. Perhaps this delisting will bode well for their future? One doubts it, but at least it’ll save a few quid a year.

Atb Fraser

Morning Mumble: British Sky Broadcasting the summer doesn't look rosy..without one drop of mining!

So Sky's results the city seemed to think were a positive for Sky (BSY), well in part they were. They added new subscribers, albeit one does not know the cost of 'adding' these nor the reporting element, was it a profitable package or not? How were they new aka existing customers giving retention benefits? Were they utilising the ever increasing "trends" of Half Price Sky to benefit? 

In monitor consumer actions its interesting that Sky's model is showing a lesser reliance on the "Sports" package and more about the connectivity/plus features in Entertainment. Analysts seem to know but have not realised the significance of this years World Cup. It's not on Sky, its been known about for ages, but this impacts on a variety of add-ons. 

What the results don't allow for is the competitiveness in the market, "the additional costs" that Sky are likely to need but more importantly, the retention costs. The market is growing in terms of retailers being encouraged to cancel contracts, most "advice" type websites are informing their readers better. This will also have an impact on Orange/T-Mobile aka EE, with their inflationary rises. One thing they tried to catch me on. As a heavy user, with various phones on my plan, they decided that a "cursory £3 a month on a £120 per month bill pay was rewarding loyalty." Alas, they lost they lot, I got savvy and am now pay half that....+ VOIP etc...

Anyway, back to Sky, the football, a key advertising driver is not available on their platform, the plays off, F1 and Golf (yawn to both) are but the World Cup the furore and everything that drives the Football non-fans mad (ME) is starting soon. In essence, Sky Sports and Sky will have a User 'sick note'...Dear Sky, we're busy watching something you failed to get the rights on (yet again) and we'll be back after the World Cup. The difference is, those not in contract will see no benefit in retaining Sky for 4 months as 'advice' sites are now suggesting they put in their cancellation notices and rejoin post World Cup. Sky's model ultimately means that most are not in contract post 18-24 months of being with Sky so the affordability measure comes into play 'being out of contract.' Lets watch for signs in Q4/Full Year Results and Q1 next year of what is likely as a result of Sky not retaining certain rights. Sky could change these trends significantly,, if they utilised some very basic and common-sense practices.

The results in Q3 were just another reason for me to short the stock, so thank you bulls, it was just assisting with making money for literally old rope. With a total ignorance of the fact Sky has to do something to fall in with the "Quad play" that consumers are demanding...a tie up, merger, acquisition? Hell who knows Sky may actually hunt for Vodafone akin the to the RBS/ABN Amro debacle? Either way, I'm surprised holders are not pushing for this deal...

As a thought for those whom are looking for trends and having personally had a daughter at the grand old age of 38, it got me thinking one day. If i'm slow to the game and everyone's having babies, the 'boom...' Then surely entertainers earnings are likely to grow, Walt Disney's results came in ahead of expectations showing this trend, more importantly, its showing signs that their parental pound and spending ...especially around entertainments. The worrying sign is, this has not been seen in the child care sector of Mothercare, Kiddiecare and ToysRUs which suggests there needs to be some structural alterations to the companies and their cost basis to improve. 

Kiddicare is up for sale, will it be developed properly or haphazardly conforming to its older model...The brand/company I've always liked, it has some significant potential, above and beyond the likes of Mothercare and ToysRuS. Albeit Mothercare would have been a good bet for Tesco/Sainsburys, stores, locations and a bolt on that could be managed. Morrisons simply was not up to the task of Kiddicare, it had all the right bells and whistles and simply wasn't pushed. Kiddicare has not lost ground its stagnated in an undervalued and archaically structured sector which has so much potential but sadly needs a draconian knife to it. 

There is some gossip about ABM holders making a profit on their stock with a potential sale. Really? I suspect the room to maneourve comes from their pledge book which was conservatively valued and debt at £53M, Vs. the pledge book at £37M. So was ABM worth circa £15M? The company stripping out the debt and the like was a good entity, albeit a leveraged play on Second hand gold.  Once you take any reconcillation of pledge book, debt I'd be surprised if the debt is repaid nevermind something for the stock holders. 

With the FCA reforms and lending expectations based around affordability, we have One Savings Bank's intention to Float come to market. "one"ders will never cease...sub prime?

Atb Fraser

Morning Mumble: The News is finally out about Xcite Energy's collaboration with StatOil & Shell

Collaboration Agreement with Statoil and Shell

Now I read somewhere about Xcite having its hand forced in respect of their licenses as they had to be active. One thing for sure the party suggesting it, was ignoring the logical elements and the market. The acquisition of data was rightly pointed out by "some mugs" as the start of a potential JV, this indeed seems to be gathering pace. Xcite's SEDA and cash situation should not be ignored but there is likely to be more news flow, perhaps September? 

This news, removes any doubts about the UKCS Maximising Recovery Review whereby Xcite's position was allegedly at risk. Yes of course the company would have lost their rights had they done SWFA but there was a lengthy process before it even got to the stage, with a public notification and various elements before one could even consider 'losing' ones license/operatorship. This is a positive in a bleak winter for XEL, is it the bottom? Who knows, but it's certainly starting to show signs of progress. I have for awhile felt XEL were unlikely to develop their assets (in their own name) and will be taken out when the timing was right. 

One will await the broker's push. 

Atb Fraser

Morning Mumble: Rurelec: why has the market not been informed &...LGO (Cash)

Rurelec: So its been known for awhile but busyness meant I have been out partying and was waiting the post Friday news updates. We know Rurelec have had a material decrease in their award as a result of a number of elements a) Birdsong agreement with revised terms (which are unknown). b) were unwilling to play hard ball and seek recovery of Bolivian Assets c) had no alternative but to 'compromise' to obtain payment plus a few other items. 

It would appear from various news flows that Rurelec to receive $31.5 million for expropriation of shares. Staying with the 'suggested' amount Rurelec will receive, and with Rurelec's announcements, that matter has been reduced now to around £3.65M, not far off the gossip. The company requires funding and stock support the latter is unlikely including I dare say a reconsideration for the Santiago listing in light of the most recent announcement. 

It would be interesting to know why the £6.5m reduction has not been disclosed to market as its a material event and falls under disclosure. Now a contractual agreement has been made removes any commercial sensitivity. For this reason, I'm taking the view not to short or long, but to stop page coverage on the basis that the company has not only risks with disclosure but the ability to grow has been significantly impaired without additional funds. Further the information tones have changed with limited information creating greater risks due to speculation, one to watch for volatility to trade or a change in disclosure/news flow before returning to the stock.

Rurelec need to announce a) what monies they are receiving b) what exactly is happening with the Santiago Listing which I suspect was more about financial transparency than AIM Regulation. Surely if one was "going to achieve such a premium on the Santiago markets one would have merely cancelled AIM? 75% of the Votes required with Stirling holding a significant proportion not a difficult task.  Finally C, how they propose to finance the developments. There's a short fall on the planned receivables to the reality of the 02nd May 2014 announcement which is lacking the significant information a shareholder wouldneed. There's perhaps a reasonable explanation for this, but the fact remains it was not disclosed, I'm sure there will be a fanfare for the amount received...either way for the long-term buyers holders they should have still made significantly. 

Over to Rurelec to inform their holders.

We were discussing the LGO position the other day and it was surprising that a couple of people whom are better informed than I on oil asked a couple of interesting questions:

Question: Did the Company known about the "drilling report" Leni Gas & Oil PLC Goudron Drilling 28th April 2014 showing the discovery of Oil on or before the Funding and New Trinidad producing fields review 25th April 2014. If this was indeed the case, it raises questions of why LGO raised the funds at that time to "assess a number of potentially attractive producing oil fields in Trinidad." C

Question: following on from above, were LGO so desperate for cash to pay someone/something urgently before further details came out they would have waited for a full assessment of the Leni Gas & Oil PLC Update on GY-664 Goudron, Trinidad. (i.e. a better placing price).

Question: Is LGO suggesting that the full amount of the funds was/is required to assess a number of potentially attractive producing oil fields in Trinidad, which have recently been made available to the Company. £1m to assess 'further opportunities', Two readers I know, your fees are not high enough! add a zero on the end please...don't send me the bill.

  

Nickel: Has anyone noticed the price of Nickel? Well there's a surprise...Will Indonesia be caving in at 9 month mark as native Indo miners lay people off, businesses suffering and China has an issue with the price and the pig iron mills closing down in their homeland. Nickel is 25% up (on futures) from the beginning of the year and some parties expecting it to Double. I closed a number of larger positions perhaps too early to make solid gains purely on the basis of common-sense. Longs working positively...

(Disclosure: No position held in Rurelec as of 02nd May 2014).