Morning Mumble: January dieting...Associated British Foods, Atlas Iron (wonders would...) and Oil. ALO forgot to tell the market about

Good Morning, with the market taking priority there will be no future apologies for the tardiness of updates nor urgency placed on any messages enquiring what time its going to posted. 

Morning Mumble: The diets begin in earnest... and the FT runs with Oil projects worth billions put on hold. The high impact drilling has always been questioned even at circa $100, quite why Premier Oil (PMO's) entered into Rockhopper’s Sea Lion on the economics is a question not of hindsight but of value for shareholders that shouldn't have been completed at this time. PMO's share price has gone only one way since Sea Lion Farm In, pre-the oil drop. 

PMO's all-in-costs from there trading and operations update will offer safety to a lot of oil investors. With some alleged low risk drilling (Falklands & Indonesia) and debt without the immediate concerns or RBL criteria, PMO is likely to have some potential upside. Personally, save for intra-day it’s difficult to justify any oil holding in the current market until the market has digested the changes. (See TLW). 

Tullow (TLW) today have come out with similar, giving clearer guidance on costs, albeit one would be wise to revisit their year-end accounts and work through the costs (limited time today). Tullow Oil plc - Trading Statement & Operational Update with write-off's of circa $1.2B and potentially more, one will wait to see what Tullow do next with murmurings in the market this morning. Over to Exxon Mobil (XOM) to acquire on the cheap with limited options for shareholders, the time to strike is "near." having cast their eye over this company before with the upside potential even in today's market. Do not expect the update to do much in the market, without some validated gossip of TLW losing its independence. 

With Game Digital (GMD) showing how margins and sales were impacted by Black Friday (Compete or Retreat), Home Retail Groups (HOME) update was with no hope of an improvement in comparison to GMD.

With Associated British Food (ABF) trading update today endorse repeated debates for divesting the food divisions, declining margins (as expected). The Sugar alone EMC Food Prices would impact and the EMC Duncan Fox ABF summing things up nicely. The company's trading outlook promoting (read as selling) the company nicely:

Trading outlook

This year we expect Primark's expansion to continue and Grocery, Ingredients and Agriculture to make further progress in operating profit on the back of their very positive performance last year. With the fall in EU sugar prices and weakness in the world sugar price, we expect a further large reduction in profit from AB Sugar, but this will put much of the effect of the structural changes in EU prices, seen over the last three years, behind us. We expect a decline in adjusted operating profit for the group but the impact on earnings will be mitigated by much lower tax and interest charges. Sterling's strength against most of our major trading currencies will also have a negative effect and we now expect a marginal decline in adjusted earnings per share for the group for the full year.

It will be interesting to see how my view on the not to short from November pans out! With my belief previous news being totally validated. (Disc: Long) Bold is mine. The market is now ignoring the Sugar and Ingredients divisions, so will look solely at the positives of Primark's performance the star in the group and making valuations difficult for traders. Closing on the news for the myopic trading and banking profits (myself). With little upside on the current SP, it’s wise not to carry profits much past the news. Under review for the short, now January 2015 has arrived.

It would of course be rude not to mention Atlas Iron (ASX: AGO), some of the dedicated have correctly spotted the shorting opportunity post-Christmas. As always, comments on AGO will be published if there are no obscenities and relevant. It is with pleasure that two significantly underwater holders decided to short post the Christmas nonsense appreciation, and have actually banked a break-even on their investment. Having held for their near 3 years from AU$3 they have actually broken even on shorts...have they been converted. Kudos! One hopes lessons have been learnt.

With Crude Oil finding support (and copper), it’s no wonder there's some hope for the obvious leveraged candidates. Brent and WTI both trading near par at $47.40/bbl (approx.). So today, the warning was on the door, the flags were waving, LGO Energy (LGO) conducts a placing to raise £1 million raised for Goudron, and Cedros update. Surely not, EMC LGO & Copper Coverage (Fumes) (Diet begins in earnest) seeing the writing on the wall, today I close my short and await the "constant" news flow again. LGO's Nomad and Brokers will obvious assure us no one knew about the placing and it wasn't broadcast far and wide and there was no selling down to fund the placement. Strangely no matter what they say, LGO has yet again performed predictably. Whatever happened to LGO's credit facility? 

Staying with the LGO theme, Alecto Minerals (ALO) placing, congratulations to whomever got this away...judging by past performance. Who'd have thought it with the importance of ALO's Completion of Analysis of Historic Drilling Results at Kerboulé Gold Project, Burkina Faso. Can anyone identify what regulatory news is contained within the 6 January 2015 announcement. The company today announces a placing to maintain working capital (read as sustenance) whilst discussions progress on potential joint ventures. ALO could have saved some RNS costs and updated the market on the Burkina Faso issues both with Government (CNT (no joke) and disturbances stopping operations for the Karma Mine operated by True Gold. Obviously other companies would be wise to update the market accordingly, after all gold is highly portable, such as Avocet (AVM) and Amara Mining (AMA), whom I'm led to believe operate not far away or have licenses near. Centamin Egypt (CEY) really need to bring the cosh out and put ALO out its misery...no premium share based takeover. The shareholders would immediately benefit. 

The final thoughts without reading too much into it the third quarter results of Mothercare (MTC) is why do they have shops? Investors should be considering graphite within the lithium squeeze, no cryptic messages just common-sense. Its always pleasing when investors re-read announcements and come back to reality, ZIOC (ZIOC EMC 30th September 2015 with ZOIC typo). (Disc: no positions short now.) Sirius Minerals (SXX) disappoints today with an update harbour facilities application. Perhaps the company can consider the difference between approvals and applications. This decisions is surprising seeing as there is the potential within the process to modify the application. Impatience will punish...

Atb Fraser.

Side Thought (only): Kenmare Resources (KMR)

With the decline in commodity prices and stockist wary of holding higher cost stocks (read as better management of stock covered here quite a few times), are KMR (Kenmare Resources) not at risk of a severely discounted sale in the waiting with the financial leverage now having greater risk. 

Iluka Resources could in essence end up with the asset for very little equity cost (if at all) and just take on the debt. The debt-holders I'm sure hold the balance or tipping point here. Having not covered or researched this stock properly since closing the shorts, it's just a thought. Over to the man from the Pru! 

Just a thought...

Atb Fraser

Morning Mumble: Food Prices (partial), CU lower soon + Market Items

Good Morning,

Apologises for the delay, Game Digital (GMD) stating the obvious sentiment in margin and bundles in the Christmas trading update. Many thanks to the GMD IPO (although a repeat listing) aiding 2015. Along with KAZ Minerals the short benefiting today's market joys with Credit Suisse yesterday commencing the kicking. 

VED (Vedanta) ( as EMC'd yesterday) was known to be closed early, it had hit the target price for a long term short circa 7 months. It does need a revisit for intra-trading but one has to take money off the markets with strict discipline. Its a muppets disease not to bank significant profits and that includes the institutional readers whom think the trend is forever, yes you too can be a Muppet. Glencore, my short on the basis GLEN's (Glencore) copper beliefs were out of touch with the market nevermind their "tear" of assets (poor I know). 

The herd shall follow in due course, but its wise to consider their coverage if they cannot get the obvious right. With coal getting a kicking again...GLEN's earnings are looking that great with greater capital intensity. Kudos to Liberum Capital whom I suspect didn't expect 240 pence, Investec might need to review their switch from Rio to GLEN

Below are some brief out-takes for something I did in June 2013/Jan 2014 and July 2014, for which I've adapted this morning. For those that know about Pork Riblets, Semi-Meaty (I'm trying to make it sound luxurious)...December has been the hit by a quadruple whammy that has continued unabated, positive for the pocket and for retail sales and more so if the trend continues. Retail will see cheaper goods (consumer durables/white goods) and higher demand as well (see  EMC thoughts on shipping costs) with greater disposable income. Global deflation/zero inflation is a risk to western economies more so than developing countries. Save for the developing nations weakness in currency (about time I must say) eroding a good 50% of any price price reductions.

So with oil now mirroring a lot of commodities with speculation being stripped out to leave a realistic market (over supply) even in the short-term, copper as the indicator of growth has fallen back. Readers cannot say they were not given the warning  in November/December. So the indicator (Dr Copper as most refer to it) of global health is pricing in more realistic growth patterns (see Chinese trade growth) nearly bang on my estimates at CampAlpha). Even with the EU's intentions of Economic stimulus etc...America's demand may however support China (perversely). 

So with the decline in commodities positively impacting on food prices for the consumer both in agriculture (inc fertilisers and other associated harvest costs), supply chain logistics (in its entirety) and point of sale costs (including energy and staff costs re: recent hourly rate declines in the US), there's only one likely beneficiary. This theme will continue for some time, with the FAO (Food & Agriculture Organisation of the United Nations) indices mirroring (to a degree) iron ore and belatedly copper. Other sources but limited time so apologies.

See FAO Food Commodity Price Indices (left), showing significant drops in prices there's a real risk of further drops as bio-fuels are awash in the market and with limited / static demand creating a surplus in animal feed as well the alternative demand does not look positive either (grain feed/food ingredients). Plus a significant pressure on the fertilisers likely to drive costs/prices lower as producers hold out for better deals and the market being in oversupply (although recently tightening). 

With record harvests across feed grains, soya and meats (if one is allowed to call them a harvest), save for coffee(long), Cocoa (only short-term) and citrus fruits (Florida Harvest issues inferring one of the worst crop every. Prices are set in trend for the next 12 months save for any major issues. We have Soybeans dropping 3.6% After USDA Supply Report (WSJ) So for the dinner party live enthusiasts you will finally not have to pretend to substitute meat for your vegetarian guests. 

The global super-cycle is moving through commodities to food and is taking hold . With commodities the first to give, then food prices, forcing the factory gate prices in decline. (Simplified version). When considering the below, also consider the global impact both to Grocers but also to the consumer. 

Just a summarised bit on what I'm able to share in terms of food prices, please feel free to ignore or digest (I know).

Today we saw the risks presenting in copper with the tank, EMC copper's real risk could not have summed it up better, taking larger positions on the way down...in the absence of any support $2/lb. is the next station. 

Limited time for the other items. Its worth commenting on the iron ore price for those thinking the summer would last longer. All the majors were down, save for Atlas Iron the second coming, with massive volume, it would be wise to pause and plan (you vultures!). With the energy crisis of over supply (Energy rout I think CitiGroup called it) guess what's happening with Coal. With a few changes to increase the liquidity in LME coming into force on the 19th of this month, traders would be wise to read the manual:-).

Risk off? Gold on? hitting the support line of $1239/oz and retreating quickly. Cost deflation is going to impact gold, its only a matter of time!

Atb Fraser

It would have been respectful for certain individuals to acknowledge the source of their information in emails, reports and articles rather than just copying and pasting.

Evening Bolt On: Food Glorious Food

Hopefully tomorrow the glut in cheap food and their surpluses...Feed Grains, Soya and Milk (Chinese over supply limited demand). This depends on a number of factors but may have to be put back to another day (read as never judging by past performance). There's likely to be some global intolerance both for gluten and lactose (poor I know). 

Oil's bounced with par trading between Brent and WTI, the game of chess is afoot. One would be wise to consider longs as higher risk but with significant reward if one catches the knife correctly. Significant interest in 2015 December Brent Futures circa $57.20/bbl. Floating storage? Oil to Asia, components and exports to America and Europe whilst the routes are cheap.

Today it was rude not to sell Bowleven (BLVN) and Greggs (GRG), whether this over time proves right, its something that I don't look over my shoulder at but will review. Having ridden the wave and made an paltry profit on the long BLVN trades I have little patience for it in the current climate. Greggs's only justification is on the news...

We should spend a moment in silence for those copper traders in denials about the price with limited time left before their positions need a resolution! A key price was hit today.

Very long day, Atb Fraser

Morning Mumble: CU tomorrow...Maike, Au+Ag and Greggs (GRG) + Oil Woah! Defaults coming...Goodbye Vedanta

China’s Maike says copper set to rebound By Henry Sanderson now the knife catching begins. Although futures and orders contradict the statements by He Jinbi. With copper futures edging lower for March at circa $2.7200/lb (flat) for May 2015 and being limited in orders, it questions the 3 month outlook by Maike. One would be wise to acknowledge that the outlook for copper in the mid-term is good, in the short-term, as alluded to yesterday (EMC) the economic indicators are not as positive as some would have you believe. What the pricing is suggesting is China could have been the material cost in copper by not their (ghost) speculation not their physical consumption.

With most traders looking at the technicals of gold bar the obvious common-sense approach, both Gold and Silver made solid gains. Gold (Au) $1236.40/oz. currently and Silver (Ag) $16.84/oz. Au is likely to see headroom resistance at circa $1239.90 and Ag circa $17.10. With the larger bets going in on NY and Asia for a material tick up some $100+/oz., the surprise will be if Au breaches $1350 by March 20th (Key date for those speculators reviewing more than H Samuel restocking (Sarcasm).

Having to review my thoughts on Greggs (GRG) EMC 15 December 2015. Showing its wise to follow the market (at times), with oil tumbling at faster levels, the weather being more than favourable and food on the go in season it was rude not to long through the Christmas period. What today's trading update does show is I was categorically wrong to call the fluke in September (EMC). Dixons Carphone (DC.) has performed as well, but banking as it hit my target price. Who'd have thought the long/short balance was near 50/50 for the Christmas period, albeit changing as the obvious candidates drop further. 

Greggs (GRG), momentum appears to be gaining strength and with no likely interest rate rises in the pipeline for some time, low oil, retail and grocery + convenience is likely to benefit save for a deterioration in their equation of positive trading (aka weather, retail and higher discretionary spending). Could the Supermarkets slower declines in LFL (like-for-like) have been saved by lower oil! Improving the costs in the entire supply chain and on the shelf.

W Resources (WRES) is yet to change tracks positively, and down to the Tungsten price...edging lower circa Tungsten APT European $295/mtu (Metric Tonne Unit). It might be wise for Thor Mining (THR) to revisit their expectations of prices at least sensibly and reduce their expected $354/mtu within their upgraded Feasibility Study. Even with some sensible revisions, THR's returns are looking half decent allowing for a higher cash cost. In addition to the lack of gold benefits as Crocodile Gold Australia Operations Pty Ltd ended the memorandum of understanding in August 2014.

It was common-sense the oil trade (read as don't be long) EMC Oil the Support, we're currently only two bucks off my critical $43.20/bbls before OPEC has to act at Crude Oil (Brent) $45.42/bbl. Whether they do or not is another matter as the material downside has to be balanced appropriately with the benefits. Strangely Quindell (QPP) had an exposé on the short ownership as soon as nature would allow, it’s strange that Brent & WTI traders have not ! Over to those complex trading houses with opaque ownership structures to keep silent and the press not to break the status quo! No conspiracy theories here, just facts.

What the market is doing with itself is hilarious, CityLink entered administration but it takes a huge great flag from UK Mail (UKM) today to point out the obvious with their Q3 trading update. The comedy this morning being "the gossip" in my in box with an alleged seasoned professional repeating an echo of years back when Better Capital (BCAP) bought CityLink. Are parties aware that BCAP owned CityLink? Its highly unlikely they'd be bidding for certain assets. BCAP years ago was my favoured play, selling out and moving on to Blue Solar in circa July 2013 for my low risk pension play. 

Whether early on not today it’s a sad day to be closing the shorts with Vedanta (VED). Having been shorting this stock since mid-2014 its time to bank and wait for further indicators and an update from the company. VED has a number of risks besides the commodities prices...that being the majority shareholder and what he decides for VED. With net debt at the last count being $9,054.6 million its likely the tumble in commodity prices has not improved debt, with a deterioration in cash but gross debt maintaining the same levels of $17,234.0 million. Perhaps a little premature but one is always wise to bank profits. This will need a revisit soon.

Little time for everything else on such a big day...

Atb Fraser

Evening Bolt On: Guess what...Oil. Stating the obvious thanks GS.

Futures are not deterring the floating storage with the bets looking more than likely for Sept/Oct 2015 stability (subject to change). Brent Crude $47.37/bbl.-down $2.74  -5.47%. 

We had the obvious opinion from Goldman Sachs (GS) being published (Reuters) & $40 Oil? That’s How Low Goldman Sachs Says It Needs to Go (Bloomberg). With GS cutting their three-month forecasts for Brent to $42 a barrel from $80 (better late than never) For the U.S. WTI (West Texas Intermediate) contract to $41 from $70 a barrel. GS cut their 2015 Brent forecast to $50.40 a barrel from $83.75 and U.S. WTI crude to $47.15 a barrel from $73.75. 

For the traders and lenders there will be many a late nights running over the reserves based lending (RBL) facilities and breaches of covenant and/or default. This has the obvious possibility to remove a significant surplus off the market. 

Over to the brokers to sell these "value" fundraisers. With so many firms leveraged the risks of default and fundraisers are now imminent. Assuming anyone wants to take the risks other than giving the assets back to the bank in the current cycle. Over to the big boys for some cheap production to be picked up.

Russian defaults should surely be stacking up...along with Kenya/Nigeria.

Atb Fraser

Morning Mumble: Anglo Pacific Isua license & General Nice Development Limited

Back again!

Thanks to the prompt from Roger Bade today in his morning coverage about Isua. New strong force behind London Mining Greenland. People will be aware of General Nice Development Limited because of their association with Petropavlovsk PLC and IRC. With this action, it makes one wonder about the economics of the project, unless of course its one for the very long-term. 

Is the drop on APF (Anglo Pacific) today an acknowledgement of the loss of royalty (unlikely as its three days old). One would have assumed the royalty was on the project (lien against title). Perhaps APF would like to update their market on the specifics. We know its written down (impaired), but is that written off? Isua update in the Q3 Interim Management Statement, where they give an undertaking to update the market..perhaps by Christmas then?

Atb Fraser