Morning Mumble: Sirius Minerals (pointing out the obvious) and...Iron Ore + Are ORM getting FORM?

Good Morning, 

Not connected with the title, we'll side step the busy schedule yesterday that resulted in a faux pas by yours truly. When discussing another company that was appropriately labelled crap, its wise to consider people’s connection or association with said crap (or more so, do homework beforehand). After that momentary silence, perhaps realism on their part, things did improve. 

Sirius Minerals (SXX) appears to have more leaks that Horse Hill, readers of the Whitby Gazette will be aware of the local news of 'likely approval.' On top of that, Roger bade informs us that the "North York Moors National Park (NYMNPA) Director of Planning recommending for approval North Yorkshire Council’s proposed park and ride scheme near Whitby; 180 of the spaces are dedicated for York Potash. Now you can’t have a park and ride for a mine without having that mine as well, can you?" 

With the obvious needs of the capital requirements of a mine, SXX has the benefit of a stable geopolitical environment, and save for any elected party member getting a bee in the bonnet. SXX is not a case of rubber stamping, but procedural meddling. SXX has a high chance of a positive outcome for the company and perhaps the equity holders. 

The market would be wise not to be over-expectant on SXX's timelines, but more importantly, having been a buyer, its wise to acknowledge the risk of potential dilution. This is one of a few companies where there's a willing cooperation and acknowledgement of dilution. Equityholders should be open to dilution, SXX, subject to the low risk possibility that would be highly damaging to any value if the mining application was refused, has the potential of a great future.

Obviously there is a risk of a 'nearby mine' meddling in the process, one that shouldn't be ignore. The board of Cleveland Potash would be wise to consider they live in a glass house. If the aged memory is correct Shaft Sinkers had the contract for Cleveland Potash, how things change. 

With things hotting up in Columbia, Red Rocks sale of Columbian gold mine, should be a welcome reduction in security costs at a local level. One cannot help but wonder what the risks are of default of payments are by Colombia Milling Limited (CML). The company isn't so diverse or large enough to be enticing for a balanced investment. Its one that falls into the very high/blind punt areas of investments. The company may have assets, however as most are feeling, save for lithium and a few rare earth minerals being flavour of the year, there's a continual pressure on funding. 

Yesterday, a chap spent significant time looking at the costs of production for AIM companies, there's commodity price expectations (and subsequent) returns that are simply unrealistic in the short-to-mid-term. We'll save naming and shaming for the time being and wait for a better opportunity, however readers will be aware of EMC views on specific companies. 

Iron Ore allegedly bounced on stockpiles reducing. Its rare to entirely disagree with news, but what utter hogwash, Iron ore rallies on China inventory fall. Stocks are still high in China, the reaction was the result of two entities buying in the market as a result of their supply agreements coming to an end suddenly. 

The market would be wise to check assertions from time to time, including the EMC. So from Li, (many thanks) this morning. “China's ports are still holding high levels of iron ore, even [with] steel mill[s] restocking. Inventories [continue] to remain high. Market orders are slowing near [as quick] as the supply is reducing from the market. With demand in China continuing to slow iron ore [is] piled up at Chinese ports” 

Connemara Mining obtained five new prospecting licenses that are apparently on trend with other operators in the area. Fundraiser anyone? Not a stock that's been covered, but with rises like this, the company would be wise to jump on sentiment and get some cash as the coffers as they must be near dry! In the absence of some decent news and lack of borrow, CON won't be covered any time soon. 

For the vanadium followers, Evraz's equity value in Highveld Steel and Vanadium may need revisiting. This does not bode well for Kenmare (KMR) or Sierra Rutile's (SRX) outlook, are Highveld one of the distressed sellers in the market? 

Whatever is happening at Ormonde Mining (ORM) is anyone's guess. Almonty Industries Inc (TSX-V : AII) do not appear to have engaged in the process or perhaps they are keeping their powder dry. ORM update on the Barruecopardo Project Financing, with absolutely no information contained within it. Simply put, in the absence of Almonty coming up with some of the goods, Oaktree will acquire an asset for a song, ORM will retain some 'sort' of management fee, and equity-holders are at risk of having little if any value. 

Over to ORM, "Very significant progress has been made during the exclusivity period, and the parties are expected to be in a position to finalise agreements shortly. A further announcement will be made in due course." Very significant? Well that would be open to interpretation, how this is considered material news in the absence of specifics is of "concern". Does the NOMAD consider the omission of the material facts of progress satisfactory?  

Limited time for Anglo Asian Mining's (AAZ) update, with positives across the board, increased production (floatation plant due online Q3 (possibly Q4), running down inventories (sales exceeding production) and production in line. The disappointment is there's no guidance on cash costs, leaving one to throw a dart at costs.

It would have been nice to have some guidance on all in cash costs as a result of material movements in energy costs (fuel) and heap leaching costs coming down near 20% in the six months. Quick calculations suggest AAZ's costs should be around $945/oz, although this has a significant margin for error, circa 10%. With the repayment of debt going as planned, AAZ can ill-afford any hiccups, with around $0.5M cash at hand there's little margin for error.

Atb Fraser

Morning Mumble: Vedanta (VED) confusion, Blurred Vision by EMC, and Applied Graphene (no news).

Good Morning,

A timely downgrade by Standard and Poor for Vedanta (VED), its likely after today the ratings agencies will have to revisit their work. VED's have had some decent results and record production Zinc, Copper, There's some positives with record production in Aluminium, Copper, Zinc and allegedly pig iron. 

Its best not to attempt beating around the bush with VED. There's a wave of issues excluding the obvious commodity price woes. VED inform the market that "the Mines and Minerals (Development and Regulation) Amendment Act, 2015" is likely to double the existing royalty rates reducing margins for VED's operations in Bauxite, Iron Ore and Zinc.  

Perhaps VED would like to update the market on the Pig Iron woes in Goa, (Sesa Sterlite). Contrary to the Q4 production report, VED may have to close their pig iron operations by the 25th April if the e-auction issues go unresolved. The limited availability of iron ore will have a knock on effect on VED's coking operations. So VED are strong arming the Government by informing the Dept of Mines and Geology that they 'may' not be able to supply the grid with circa 16MW of electricity. Slightly contradictory to VED's assertions that progress is being made (See: Times India article 9 April 2015). 

A damn good piece researched by Neil Chenoweth was emailed to me the other day, with an interactive explanation of the movements and taxation benefits in layman's terms. Tax office pursues BHP Billiton and Rio Tinto over Singapore tax shelter. Rio Tinto and Bhp Billiton may just have to review their taxation and operation arrangements, the question for investors should be "what's the downside!?"

Having put some time into Blur Group (EMC: BLUR) and finding no reason to go long or short, the writing is now on the walls. Blur today confirm in their 2014 trading update, they appear incapable of turning things round. Worse, Blur apparently need the assistance of KPMG to determine "that a number of older projects started between late 2013 and early 2014, which have experienced delays, have shown a lower likelihood of completion." 

Why KPMG need to be consulted on the likelihood of completion of projects is beyond me. BLUR as a result of today will be battered further. Having previously shorted this company, this weekend is a good time to review and test theory that BLUR's value is circa 2 pence. Statements like today erode any trust left in a stock. 

There's been some speculation about Applied Graphene over recent days, simply put a) the shorts are out b) there's a buyer in the market and c) there's limited stock available. Anything else is unknown. 

Atb Fraser

Morning Mumble: Anglo American's (AAL) woes, Patagonia Gold (PGD) and yet more SRX Jam

Good Morning,

Anglo American (AAL) have a growing discontent, with the strikes being declared by Anglo as wildcat. Despite them allegedly not going through the proper channels Anglo are speaking 'with the powers at be.' The starting rate of 6000 Rand a month, is the bone of contention, well the tip of the iceberg. Post any resolution, we can expect the time served miners to strike because their premium for experience and skills is now under-represented in their pay-packets. 

AAL, will of course open dialogue to discuss the miners woes, having recently agreed wage deals in June 2014, its unlikely there will be a deviation from the deal agreed. BHP Billiton (BLT) and Rio Tinto (RIO), although not as connected with the South Africa issues (excluding Short32), on the coal face and mine pits in Australia there's also a disharmony. With strikes unlikely at the moment in Australia, longer term BLT and RIO are at risk of being held to ransom by their employees. 

BLT have recently recommended to the Productivity Commission to limit industrial action to specific events, allegedly on safety grounds. The Unions of the contractors and workers are starting to feel their corporate parent isn't behaving appropriately.

Patagonia Gold (PGD) announced results today, unlike most with an unrealistic expectation of a profit. PGD have made a decent headway in covering their costs, when all things are considered, this could just be the start of the turn for PGD. It’s rare to get excited about potential, but PGD might just be a favoured minnow of a gold play. The caveat being, it depends on how much money they sink into proving up the 'currently' uneconomic proposed heap leach at Cap-Oeste. Simply put, in the absence of a significant increase in the oxide resources, any proposals are not viable a gold prices below $2,100/oz. and sub $24/oz. silver. 

It was a pleasure to be part of the thundering troop (poor I know) of Horse Hill today for a not so untidy profit in a few hours and out again. With continued news to come, surely there won't be further fundraisers. Please don't forget the sarcasm, but more importantly, is there a leak yet again! We won't comment either on the 5% divestment made by a certain mining company either, where the timing was poor to insulting. 

Had there been time yesterday it was intended to comment on Tech Metals Research which is turning into the place to go for Rare Earth Metals commentary. Some good analysis and a decent place to start, one broker could do well to spend some continual professional development time on the internet rather than getting his metals so confused. 

Little time to cover Sierra Rutile (SRX)'s Q1 results in-depth. With some positive hedging in fuel costs, but one must take the opportunity to remind the market, it's essential for a company (especially SRX) to sell the products they produce, please note their costs (as eluded to by EMC). It's pointless producing a produce/ore without sales. 

The TiO2 market is in the crapper as SRX states, any improvements are likely to be, "tempered by forced sales from certain distressed TiO2 feedstock producers that continue to undermine price improvements." It’s prudent at this stage to reiterate the view of EMC's from March. Until any decent recovery in TiO2 (Titanium dioxide to you), there is no reason whatsoever to hold SRX. If one was to be forced to throw a dart, it's difficult to find any value about 10.75 pence and that could just be too generous. 

Atb Fraser

Morning Mumble: BG Group finally succumbs to one of three suitors, is there another offer?

Good Morning, 

BG Group, the favoured long oil and gas play of the goliaths, has finally accepted a cash and share offer, albeit this wasn't the rumoured Exxon but Royal Dutch Shell (RDSA). The deal, at today's prices, will make any interested party think twice before making an offer. 

The offer is rich 'enough' allowing for the blend of assets, Egypt and Australia plus deep water opportunity and increasing market share in LNG. BG's cashflow for the future justifies the premium and will not be ignored by the big fish!  

RDSA now becomes the real bet and favoured over BP et al (save for M&A there but unlikely with litigation on-going). One cannot see any shareholder rejecting this offer. Its borderline rich and only a fool would consider voting this down.

Its one M&A action where it may just be worth holding the stock until the paint is dry, as two companies with plenty dry powder may just see future value above and beyond 1350 pence (383 pence cash and 0.4454 Shell B Shares). At the price, any offer is very unlikely, but...never say never. So entirely contradictory of the above, all stock was sold today!  A greater believer in taking the money now, rather than the hope! 

Staying in sector, with the gossip Gulf Keystone (GKP) just about to be 'part of a deal', with company being very tight-lipped, Malcy's assertions look to be bang on the money.  Some interesting moves to wash away the Easter fat!

We had Centamin Egypt (CEY) Q1 production report, without many concerns and bang on the money. CEY at some point need to change. With a suggestion of grades improving towards the end of this year and guidance back to 450K ounces per annum, there should be some improvement in broker opinion. The outlook, although marred by litigation and failed joint ventures has not done the company much good. Perhaps it’s time for a change of management at CEY. With no indication of costs, one assumes CEY have improved on the previous quarter/half by circa 6%. 

The iron ore producers had a mini-celebration with a common-sense assumption up to 15mpta of iron ore have disappeared off the market. For those following the saga, EMC had not appreciated that had Atlas got South West Creek up and running the cash costs would have been a not too shady, $42/t. Something that isn't that enticing in the current market but longer-term for bondholders there's some 'hope.' 

Sirius Minerals (SXX) announced the results of their potato crop trials last week (8th April), the benefits to 'key crops is not to be ignored nor are the capital requirements. SXX will be viable, although one should consider not going all in, more so buying over time. 

With some friends around Hatton Garden commenting on the news crews in the locality reporting on the heist, it’s nice to see a  Forensic Chemist wanting to apply to be a Jason Statham extra for the impending film. A few pounds lost might improve your chances Adrian! One can look forward to hearing about what was left behind, if its like previous robberies, laundered cash, guns and odd narcotic will be the flavour of the day! One hopes they had adequate insurance and expect some knock on benefits as dealers and jewellers restock. 

Atb Fraser 

Morning Mumble: Atlas Iron (limited)

Good Morning, 

Despite the obvious being ignored by 'some', Atlas Iron shares have been suspended. Simply put, Atlas's bondholders are now sifting through the pieces in order to attempt to recover some of their monies. In the absence of an unlikely sale, a willing investor (possibly Chinese) and some sympathetic bondholders, there's almost zero equity left in the company for shareholders. 

If parties (Australian readers) are unsure of the process, one would be wise to read up on Afren, African Minerals et al for the outcome that has been obvious for a significant lengths of time. Put quite simply, Atlas Iron produce / mine iron ore, the price is in the crapper, with a reduction in fuel costs giving a glimmer of hope. Atlas Iron have suffered via detrimental (but obvious) currency depreciation against the dollar, the iron ore price falling a further 25%+ and now the headwind is untenable.

The management and company to their credit have done their best with what they had. Although if one was to use the phrase a presentation phrase I coined awhile back, Atlas had entered the Formula One championships, in a Ford Fiesta. We'll ignore the analyst's comments inferring the EMC (*and Li) did not know what we're talking about, and stick with the facts.

Any royalty or taxation reduction proposed by Australia are unlikely to be able to save the shareholders, perhaps bond holders, but shareholders are now wiped out. One envisages Atlas being a long-term care and maintenance/mothball until such time as prices recover (consistently above $60/t).

Amara Mining 2014 full year results were out today. Contrary to some coverage, they were not in line with expectations, spending circa £1M more than guidance, although immaterial to the grand scheme of things. Yaoure is the only way forward, with the Pre-feasibility Study (PFS) due May/June (*from memory this is a delay), one expects some rubber stamping and no surprises. Randgold best get their finger out, or they could find themselves missing out!

Kefi, keeps spinning those plates, update at hawiah Saudi Arabia. One wonders if they would be better off focusing on Tulu Kapi and conduct the bare minimum of works on other licenses unless incentivised by another 'well-wisher' (read as funder).

Oil 'steady' as she goes, with some short-term recovery and narrow of the WTI / Brent spread (gap). It would be rude not to acknowledge some decent work by Goldman Sachs on the long-term outlook for Oil, lower for longer, although their price expectations are like darts in the dark!

Atb Fraser

PM Bolt On: Happy Easter, The Snap on (S)AGA Rangemaster (AGA) + Atlas Iron Watch, the new low.

Good Evening,

Some may be pleased to know EMC will be offline until after Easter, safe for two items (potentially). Ian has this golden opportunity to become active, although looking at his social diary, I suspect Ibuprofen and Paracetamol will be a key component of breakfast.

Following the (S)AGA Rangemaster (AGA) from FTML, with today's SP it’s wise to bank profits on all shorts. With near 30% downside in the SP from my previous target, it’s wiser to be a little more conservative and bank. Do not fear, the softness may be short-lived. 

AGA are currently pushing their marketing in China and have formerly launched their AGATC and Redfyre brands. With any likely benefit in brand in China potentially improving performance benefiting and support in the stock with "hope value" (speculation.)

Performance in the UK, with access to easier credit, should be around 2.5% better. A new launch for North America with the AGA Marvel range (the Northland acquisition circa 2003) this autumn, will assist the company plus China and Europe in QE. With a decent potential momentum on all continents, one is turning morning positive on AGA. 

Without knee-jerking to a long, it’s certainly under review, with some decent news flow (potentially positive) across the entire range (poor pun). AGA have had some well-timed launches across all regions, the future could just be warmer for AGA than the previous 12 months, with a disappointment in the market performance for those holding long. Patience could just be rewarded.

Atlas Iron (ASX: AGO), touched a new low overnight, at circa AU$0.12, bouncing back, reality? 

Happy Easter, a break if you're avoiding Easter or merely just enjoy the bank holidays. 

Atb Fraser

P.S. Stay tuned a well-versed commentary in due course with a contrarian view on a stock.

Morning Mumble: From Steel to Sugar, the Unbelievable + EVR the FX benefaction &...RCG + British Sugar (The David and Goliath of Sugar spats)

Good Morning,

Iran with no news = tank (poor pun I know). Those bulls being torched don't appear to grasp the simplicity of the statement. We'll keep it simple, just for those large traders in NY, having had 3 opportunities to close their burnt positions, are now doing so at a greater losses. If oil inventories and production are up, and demand lower, then the price will fall. Perhaps the market should have kept an eye on the 'well-count' rather than rig count.  Mental note, when applying for positions in large trading houses, in the hobbies put down "not know when to quit." What's $812M between friends.

Sticking with the theme of unbelievable, Evraz update the market today with a proposed tender offer of $375m. Does this company have no debt covenants? Would it not be cheaper to buy their debt? Within EVR's annual financial report investors would be wise to focus in on the 'slight' differential between 2013 and 14 in "equity attributable to equity holders of the parent entity" (that item otherwise known as shareholder funds), with a modest decline of $3,447B from $5,463B (2013) to $2,016B (2014), these figures include non-controlling interests. 

Evraz (EVR) net debt was reduced 11% to US$5.8 billion, which looked to be on the conversion and repurchase of debt in market. As with Kingfisher (KGF), never bet against buybacks in an appreciating market. EVR is mystifying save for the FX benefits of costs, so off like a rocket this morning. EVR's recovery since the height of the Ukrainian crisis has been legendary. With the market being pumped to sell at 10% premium to 187.70 pence, one can't help but wonder where the SP will hit soon, 206? Perhaps even the cap. 

As if the market needed reminding of the woes of British Sugar (ABF), along comes Real Good Food (RGD), with an award for reminding the market of the distressed nature of the global sugar industry. RGD have not only accused British Sugar of market abuse in respect of supplies to Napier Brown, back in 1988 and again 2014, but Napier Brown is now up for sale. Does a buyer want a business that is alleged to be impaired by its key supplier. Perhaps a sale would be wiser post any legal action/settlement between the warring parties?

With an interest in Pork Semi Meaty Riblets (Sternum Part On) (its not so appealing in the UK is it!) and all other food stuffs. One will remember that Napier Brown was proven correct in alleging that British Sugar had abused their dominant market position in 1988. This action resulted in a paltry fine of €3M (Euro) imposed on British Sugar. EU Commission Decision 18 July 1988 Napier Brown - British Sugar. One would be wise to read 'remedies' page 18, item 83. Its likely British Sugar (ABF) will have to make certain provisions, including the potential for a 10% fine of turnover. ABF's  British Sugar last reported turnover was £742m. 

Any actions bought by Napier Brown are not going to assist their bottom line, with debt increasing, any sale is unlikely to realise a true value. Purely on the basis of its long-standing and problematic history with British Sugar (their key supplier). The irony being, the offering could be more valuable to British Sugar than any other entity. All the proceeds are likely to go towards paying down the debt, near £36.3m (Net debt) at the last interims. Over to British Sugar to buy Napier Brown, which could perhaps be cheaper than any fine! 

ASOS (ASC) interim results are out, with no change in view from earlier this month, the market was welcoming the improvement in customer numbers (passing the 9M mark) and more importantly, active customers on the increase.  

ASC cash declined just over £9m in 4 months to £64.9m from 31 August 2014: £74.3m, admittedly up 76% on the comparative half, from £36,914m. Yet again, we see a deterioration in margins,  with retail gross margins down 270bps. The market will focus on the active numbers, local pricing (zonal pricing aka local currency pricing avoiding the customer taking the risk of FX movements) and group revenues being up near 14%. 

One has to wonder with the push in "the label" directory from NEXT, how competitive the UK market will become. Today's news was an opportunity to close longs and await a market reality, the market might realise sooner or later margins have been impacted by the introduction of zonal pricing, albeit with double digit revenue improvements. 

Atb Fraser