Belated Morning Mumble & PM Bolt On: Shaft'ed (SHFT), AAL something's lacking in the sandwich & AHhhhhhhhh'fren + the Alleged amateur of aim...+the paradigm shift in China's iron ore.

Good Evening, 

With Indaba and a few other items going on it’s been extremely busy week with meetings and teleconferencing from the UK. Today a slide show was emailed around with myself to be "formerly" known as the Amateur of AIM. It’s a pleasure to drink their gin this evening, but restricting the consumption to a few rather than two cases (apology accepted). 

Shaft Sinkers (SHFT) hit the wall with a financing update at 12:32, just a few weeks after a "yoff" (read as person younger than I in a position I'd have loved when I was his age) challenged the EMC analysis of the company and why it hadn't gone bust!?! SHFT is dogged with its inability to share the risks of contracting with the miners, creating an imbalance in returns and something contractors need to learn (mail box for a quote to understand this; its not cheap!). 

SHFT's issues were endemic of commodity prices declining (receding super-cycle), opex/capex cuts, the South African strikes whilst not forgetting the Kazakhstan contacts were totally misunderstood by the market and lack of risk sharing in contracting. It was one of the favoured shorts, kick the dogs. The employees and staff should be ok, it would be wise for investors to note a few key names from the board in their journal for future reference.

Anglo American (AAL) Full Year Results 2014 is/was abysmal. The write-down on Minas-Rio of $3.5 billion is laughable when the company state Minas -Rio is ahead of schedule in October [2014] and expect to bring the project in $400 million below the revised budget. Do the company have a handle on costs at all? Revising costs up, then coming in significantly below the revised budget. Sounds pretty much like a blank cheque. 

The savvy will start questioning whether AAL's net debt target of $12B is realistic in the current environment. With debt set to peak at $15.5 billion (EMC estimates) by end of year, commodities and free cashflow are going to have to significantly improve before one becomes positive on this stock. De Beers should be called Long32 (to mimic BLT's short32/south32) and be divested to support the balance sheet whilst there's value in the market. The market stupidly reacted today, and will ignore the realities. Up near 20% off its lows anyone would be thinking it’s going great guns. 

Afren (AFR) has had a lot of rumours abound today, as per FTML it was proven to be BS, save for the low ball offer that SEPLAT (SEPL) were offering. Afren shot out the gate with little option to maintain but to maintain there's value, with offer talks being terminated. SEPL announcing they had completed extensive due diligence on Afren and made a written proposal to the Board of Afren that provided critical and significant near-term liquidity and value for the stakeholders of Afren. Value for stakeholders...loose term for "not the shareholders"? 

It would appear David Lenigas has started a snowball on Bacanora Minerals (BCN) after the recent request to gain a seat on the board via REM (Rare Earth Minerals). A decent holder said today, they'll reconsider the viability of BCN if David Lenigas gains a seat on the board. Voters would be wise to think where their money is best placed. There's a number of items going on the side lines with BCN and good to follow as the big boys (exc. REM) start to play...its best to leave that one there, however if you're widow(er) or orphan you'd be advised to avoid.

With oil's absolute focus on rig counts it’s a speculators licence to print money as oil was propelled above $60/bbl (Brent) with the Euro-zone giving it a little squirt. Why it's rocketing away is purely down to a bounce with the surplus even allowing for a reduction in production still out gunning demand. The market is rushing to price in a reducing rig count, some "weather issues" (as Malcy eluded to in his blog) creating a better balance. 

The final thought of the weak (scuse the pun) is the iron ore short and the Vale gaining permission to utilise their giant ore carriers to China on Monday. Obviously this has nothing to do with some agreements with Cosco (China Ocean Shipping Group) and the related transactions. 

It’s rare to be able to quote EMC directly, so here's with a little clip from today:

"If China subsidises native production by 30$ a tonne for 125mt it effectively causes over supply and a short to $55/t. The subsidy via development grants will be partially offset by the 700mt at the lower price.  

China have just shorted Rio and BLT by allowing the super ore carriers in on Monday (9th) something Rio et al forgot to mention in their updates! Expect Cosco (China Merchants Energy Shipping state owned), to get further involved in the low cost super/giant carriers the deal with Vale from last year showing they're willing to apply pressure on Australia . The deal with Vale/Brazil has in essence reduced the need for 30% of Australian ore alternatively they [Rio et al] must slash prices.”

We'll leave it there...see you on Monday! 

Atb Fraser

Morning Mumble: The Mammoth (Rio) attempts to please the market and support its own SP

Good Morning,

Rio's full year got shareholders salivating with the headline "Rio Tinto delivers underlying earnings of $9.3 billion and announces a 12 per cent increase in full year dividend and a $2.0 billion share buy-back." The Australian market action was perhaps the best response, flat. 

With a reduction in CAPEX and debt, plus $500m tender and share buyback $1.5 billion will all support the SP and get the analysts chomping at the bit. Rio have been saved by the aluminium improvements compared to last year, EBITDA up near 55% and earnings a respectively handsome 124%, with copper not performing too badly either EBITDA: 33% and underlying earnings, 11%. The recent commodity falls are predominantly outside of the majority of this periods reporting.   

A quick glance at the numbers, it’s wise to remember prices for iron ore have “nearly” halved in the reporting period and copper slipping significantly, with further dips predicted. Rio believe there's around 125 million tonnes of high cost production from China and non-traditional seaborne suppliers to exit the market in 2014, with further exits anticipated in 2015. This is assured as casualties unfold and give up the fight. China may however find a benefit in supporting native production to maintain the status quo of low prices and reduce monopoly.

With write-downs on foreign exchange debt, reducing CAPEX (likely impact on earnings post 2017) and impairments already in the bag, the underlying earnings were set to benefit. Next year may be a different story, with demand under pressure, aluminium and copper (likely to be under-pressure again soon). 

Indonesia's unprocessed export ban has benefited those operating elsewhere (namely Australia and Philippines) and has created an increased demand for alumina and bauxite (but for how long). China has suffered from a surprising lack of stock and turned to Rio et al to fill the void. Any change in Indonesian policy is likely to impact hardest on Rio. In summary, Rio is now the stimulus and dividend play of the market, putting Glencore's (GLEN's) update yesterday to shame. Over to the share buyback to support Rio's SP in the longer term, just like GLEN’s (sarcasm).

With the share buybacks continuing there's no reason for a realistic 3600 pence tp + some hope value, where perhaps the market should be revising the returns downward in light of the obvious happening within commodities. Before holders gets excited about reversal of impairments (write-backs) in Rio, at $1.049 billion (net of tax) of book value for aluminium and bauxite, its worth remembering they've already been written-down near $29-30 billion. A positive in significant cost improvements and high regional market and product premiums, aka Indonesia's loss is Rio's gain but nothing to shout about. 

BCN (Bacanora Minerals) takes the gloves off and announce EGM requisition with the proposal for David Lenigas to join the board. BCN outline the case simply with the search for a technically orientated CEO, which should be sufficient. REM (Rare Earth Minerals) already have representation on the board in the form of Kiran Morzaria, its wise to read the disclosures (and the respective companies’ performance) to consider the pros of any further REM volunteers and employees being strategically placed.

If REM wish to play hard ball with BCN both entities will only be doomed. BCN may wish to throw a spanner in the works and raise some cash and dilute REM. BCN would be wise to contact those valuing decent projects above any association with REM. Lithium is the way forward, but sometimes the assets have more attractions than the associated parties, see: LGO commentary and Victoria Oil & Gas. 

With Brent, WTI, Gold and Copper all taking a breather whilst everyone has a hug in the Ukraine, perhaps next week will bring more volatility. Its nice to see a stale bull in CPR APR Energy reducing his lithium intake as the stock has a change of direction in his fortunes with the Australian Pilbara announcement. Is the company is on the turn? With mutterings of some positive tendering and perhaps even a quick decision coming out of Libya. Over to Aggreko (AGK). 

SuperGroup (SGP) announce that Susanne Given, Chief Operating Officer, has stepped down from the Board as a director with immediate effect and will leave the business in order to explore other opportunities. We'll leave that one for another day...

Atb Fraser

Pm Bolt On: The Whooping great Lonmin and Skyshorts &....Glencore, Aussie Dollar + Oil.

Good evening, 

Exceptionally busy day but moving swiftly on to the realities biting in the PGM sector and digital TV rights sector. It would appear Glencore (GLEN) could not find a company desperate to take on their Lonmin stake bar the currently holders gaining “in specie." Has Ivan lost his touch of being able to do deals?

Lonmin (LMI) and RSA (Republic of South Africa) unless something remarkably changes is unexciting and unlikely to produce decent returns for holders. GLEN's actions have capped any positives LMI would have had, although the shorters will have welcomed the reaction. We will ignore LMI's margins, they don't appear to want to comment above stating they're profitable. 

For those knowing more about LMI, quite why they're spending what they do on their furnaces without introducing ConRoast in its full form is something perhaps the company would like to answer. Does the company need reminding they have grandfather rights in the technology? Bob the Builder would welcome this type of contracting work, build, blow up repair...perhaps Shaft Sinkers should morph itself into blow up repairs?

GLEN's production report was out, avoiding the killing the shares deserved. Spending has been cut from just shy of $8 billion to $6.5, GLEN's positioning in the market with its assets doesn't bode well for the underlying earnings that will be announced in 3 March 2015. Production was far from enough to prevent a drop in earnings, but the market likes the additional cuts, when is GLEN's dividend under review/shelved? 

Those LMI in specie holders looking for a new home, there's always ITV, with a lot of noise coming out from some decent corners of the city about a potential offer. The caveat I'm long in ITV and would welcome a take out by Vodafone or Liberty. Having attempted to test this not one journalist (all 8) known to EMC have been able to validate the chatter. So it comes with a high risk warning. 

GBPAUD (£Vs. AU$), the favoured FX play, with the political issues and rate cuts, commodity prices and general state of the economy, Australia has got its wish on a weaker currency. All those years ago, via Moorad's Shout Table in the Long Room the targets were a little expectant in terms of time frames. Closing the GBPAUD longs and awaiting the next set of indicators post £1VsAU$1.97. 

Australia will be affected by the iron ore 'cost war' with Rio battening down the hatches in Pilbara and giving the signal to the sector, Rio Tinto stops hiring in bid to cut costs, Australian's may be at risk of causing their own increase in unemployment by their determination to allow the excessive supply of iron ore and coal. GLEN's suspension (temporary shutdown) of coal production in Australia was too little too late for the market as their figures of increased production evidenced, over supplying your own market is never wise by circa 8-9mt's minimum. 

Oil (Crude & WTI) continue the realisation of inventories and take a further kicking, the Chinese speculators disappeared as quick as they came, we'll await the press realising the floating storage being below market consensus. WTI trading $49.10/bbl off 1.84% for March contracts and Brent's disparity narrowing at $54.72/bbl off -3.03%, not great for those, including the minnows Trap Oil (TRAP). TRAP came out and gave their holders a royal awakening with a corporate and operational update, one wonders if they were asleep at the wheel as investors.

Hats off to BT.A for playing a very shrewd game and forcing SKY to weaken its competitive edge and overpaying on premier league rights. Unless Sky have bought the rights to a magic show, the end user is going to have to wear some of the costs or the shareholder, its unlikely to be much of the latter. The term unsustainable covers Sky's premier lead bidding very well. Sky needs a few more users to spread the cost...

Who would have thought it, Apple going into First Solar, what next Tesla? Surely gold isn’t weak due to Apple share price appreciation at $1219.10/oz. 

Atb Fraser.

Pm Bolt On: Providence Resources (Share sale)

There's apparently good news in the offing for Providence Resources as a company is willing to attempt to raise the monies to farm in to Barryroe. So with PVR having lifted its skirt and Sequa Petroleum allegedly having liked what they've seen in the data room, it's down to the price. Sequa like to take discoveries to production so have a better understanding than some of the market, but also are savvy in their transactions!

What holders should be concerned about is Anthony J F O'Reilly (major shareholder) and founder investor has slotted 6% of the company holding 6,136,565 ordinary sharesaka 9.49% of the issued ordinary share capital. Its wise to take these sales as signals, or as a little bird tells me to wait for a holdings RNS from a like minded individual. Hmm...not sure I concur with the latter. 

Atb Fraser

Morning Mumble: PGM Horse Trading &...and real economics.

Good Morning,

The rocky road of Republic of South Africa (RSA) PGM industry, or soon to be known as the shareholder gift-aid scheme. Aquarius Platinum (AQP) has managed to find a sucker in Northam Platinum (NHM: Johannesburg) for the Everest Mine that's been on care and maintenance since mid-2012. The costs associated with mining, allowing for a weakening Rand(ZAR) and labour disputes settling down, makes the industry untenable at current costs and a surplus in the platinum industry mean prices are going to stay around production costs plus 7% (ish) for the foreseeable future unless something changes. So any leveraged outfit is unlikely to achieve a sensible level of shareholder returns. 

Will it benefit Sylvania Platinum (SLP) J/V at Everest North tailings operation? Unlikely, but the management can of course use some crystal ball gazing to award themselves some more no-cost options to reward them if Everest North does come back online. Its difficult for a platinum company, if they don't invest in platinum they're essentially saying what everyone else knows, there's better returns elsewhere. Until the gap between demand and supply narrows mothballed mines coming back into production will only prolong the pain for the sector. 

Inspirit Energy (INSP) signs letter of intent yesterday and conducts a "micro" placing today. This appears to go in for a seasonal ramping. Having a position and traded this stock according to ramps and news flow. The company needs a decent partner with funding that removes the risks to the current holders. It’s "almost" identical to LGO's Spanish oil news flow all those years ago. Not without risks, but with some potential, one hopes any deal isn't hindered by a JV with a Goliath that has little interest in pushing the market share. We'll ignore the obvious with the Micro-placing terminology, it’s a placing and very small at that...almost implying its crowd funding. One just hopes they don't open a microbrewery! 

With Oil tracking the bi-polar mood of the world economics at the moment, it’s disappointing to see the likes of TUI AG Plc (TUI) hedging so significantly in their 1st Quarter Results. Forget hindsight, when would have TUI have not benefited from a 50% (approx.) hedging and fill the rest from the spot price? Perhaps this amateur is missing something, but a quick gauge over the past 5 years would have meant a net benefit of circa 6-7% on fuel costs.

Copper is hanging on the cliff of appreciation or depreciation, with some gossip in China that the numbers and trade are down further. In contrast financing seems to be improving for leveraged trading (attempted bottom feeding) and restocking taking place contradicting all those bulls the market was artificially low. trading circa $2.5450/lb. Chinese trade data now increasing the odds of Chinese full-on stimulus if they wish to maintain their growth targets, the market awaits the direction or revisions to growth. 

London Property Bets in the FT. EMC commentary on Berkeley Group & Foxtons, the first set of shorts were 5 months ago and now the market is waking up to the realities again where there's a secondary short as the market accepts the facts. 

Zoopla (ZPLA) and Rightmove (RMV) have to do maintain their competitiveness with their fees and advertising. OnTheMarket.com (OTM.com) is the dilution for the sector and a disruptor over the long term for earnings, whether it is a success is immaterial to estate agents whom can negotiate harder, with London normalising, ZPLA and RMV will be under pressure. Expect the denial and ignorance to persist with price appreciation in the market, until OTM.com's marketing and impacts are felt. 

UBS find themselves with the no news award today confirming they've been affected by the CHF both short-term and longer-term. It will impact on their longer term results, unless of course they've employed a magician.  

Atb Fraser

Morning Mumble: De Ef Esse &

Intention to Float - UKLA - DFS Furniture Limited, should thrill those whom want an almost identical sofa as their neighbours. In discussions yesterday its suggested DFS are getting the IPO away (like SCS) as the trend cyclical and towards the peak. Its something that needs a little more work on, but all the same, when the company is surprised by their own performance but with no mention of this within the IPO docks one thinks they're chancing their arm. 

DFS don't do premium brands which excludes a significant number of middle earners. Having just purchased la-z-boy electric recliners for my crib, I'm inclined agree. The shrewd will not be short initially, with a degree of seasonality to the sales and sector will this be akin to longing Majestic  Wine (MJW) through Christmas to sell in January, save for this year. 

There's some deflation happening in RSA (Republic of South Africa) at the moment with Anglo American's (via AmPlats) sale of Bokoni mine in Limpopo. The reported figure is $263 million down from the $385M before Christmas. they'd only have to wait a few months before they could just gift-aid it. AmPlats will no doubt be happy with any taker, Atlatsa Resources (ATL.TO) may be a different story whose price appreciation was last seen during the Jurassic period.

Today's no news award goes to Tate & Lyle, the views from EMC are known, Sugar is in a dire position. The update is more of a bitter after taste (perhaps stevia like). Investors should consider this another shot across the bows for the sugar investors. 

EMC was wise enough to spot the ethanol margins but the market and certain analysts seem to have ignored the swell in bio-fuel inventories. We'll save the face of one individual at a certain brokerage the shame of what he thought of my ethanol mumblings, only two weeks ago with a side thought for banks including ethanol. So TATE's trading update slots perfectly into the category knows as a profits warning, we'll ignore the issues with High-Fructose Corn Syrup (HFCS) for now.

Oil's over to the big boys to speculate and acquire positions, with the majority on the sidelines, the speculation and big bets are pinned on a recovery by December 2016. One is getting the impression the traders are holding their fingers in the air and misreading the wind which is really a draft. CAPEX reductions will not change the supply immediately, demand will. 

With Afren's interest now looking more than likely to assets only, will the bond holders be taking the company? The longer-term view assuming the market is correct will mean the bonds are looking more like a semi-decent bet.

Copper has decided to find parallels with oil hitting $2.5761/lb on little more than physical buying...could the commodities cycle be on the turn or more a blip in the lower lowers and consolidating positions after significant drops.

It was amusing the banter from the long only contingent today with their reviews of Poundland's (PLND's) acquisition of the 99p stores. Yes, perhaps a timely reminder to stick with the original valuation of £4, having sold in November for pretty much what I paid, today they aren't far off my target of £4 which should be reviewed. 

Atb Fraser

PM Bolt On: Normality resumes with oil and the swallows have left with China needing Growth support, cutting reserve ratios. Vale, APF, X2, Largo Resources...

Good Evening,

In my absence the market been in denial. The assumptions on capex is that there will be a reduction in supply. So the market intelligence focused on the drilling rig count than the supply. Inventories were up and more than the consensus thought. Perhaps the consensus needs some educating with their inability to read the obvious. No wonder the myopic speculation became negative/nervous with Brent and WTI today and ran for the hills. A few fingers were burnt in there today and wrongful assumptions about strikes...you have been warned!

Struggling economies are under the cosh with reduced oil revenues and a weaker currency the infighting is already occurring. It may pay those bottom feeders to consider Turkey for the annual hols. With the interest rate being the main enticement to the Turkish Lira (₺), and the Central Bank under significant pressure the currency(ies) are going to be volatile. 

Record iron ore capacity was announced coming out of Western Australia, it's a wonder who the casualties are. The minnows we know but there will be some rights issues on Indian producers with prices set lower than the international market. Add into the mix the pressure from Russian operators with the currency advantage it’s not looking positive. Its been known on the shop-floor in China, but ignored by the analysts, that Steel Mills are more willing to adopted the "just in time" approach for purchases. The price is going to be stressed unless further stimulus is announced as the Chinese become savvy at stock management; evidenced by the port inventory declines. 

Mick Davies's X2 Resources (X2) may come to Vale's assistance by purchasing some of their Nickel assets including Sudbury Ontario (population significantly reliant on Vale's nickel). Vale would like a partner for their Nickel ops, but what price is realistic at these prices? X2 are now rumoured to be finding some debt to fund a 'certain' acquisition. Who what when isn't the question...we know what's available it's a question of timing.

The other day EMC got "almost" positive on Anglo Pacific (APF), and today, there's a proposed acquisition and placing. How this placing got away as they also announced reduction in dividend by 40% and they forget to mention that Largo Resources (TSX: LGO) (Vanadium pure play) with Iron ore credits (or lack of) helping to miss all targets, costs and we'll assume the debt can be refinanced. 

Largo's cost issues alone live little room for error. APF are interested in a 2% Royalty on, with targets missed. Thanks to Roger Bade for pointing but, once confirmed, one might need some smelling salts if you continue to hold. As discussed on EMC Largo Resources and here (Afren Favourable result & Largo Resources (Maracás).

Atb Fraser