Morning Mumble: Chinese Property Bonds &....wonder will never cease, oil revisions downwards.

China's overseas property investment to reach $20 bln in 2015-study As Kaisa defaults, Goldman sees value in the property builders. The property slowdown is forcing the insurers and larger Chinese developers to diversify their holdings to an international hedge. Its wise to consider this the top of the property cycle as the leverage is unlikely to be paid with internal growth faltering.

Li put it simply , "there's just so much on the market a buyer is being deterred from the off ings". Li I am sure meant offerings but you get the idea. Li's been tracking the property market since the clamp down on corruption in China and the charts are staggering, dropping almost identically from 18 March 2013 to today. Surely the Chinese housing situation isn't directly linked to corruption that the dropped started 4 days after Xi Jinping became president?!

Today, Royal Dutch Shell (RDSA) announced there 4th Quarter and Full Year 2014 Unaudited Results and with it a very logical  update balancing growth and returns to address the sector issues they are experiencing was the license to print money for those short on the news. RDSA's prudence in their sales was more fortune than well-timed divestments. 

RDSA buybacks are scrapped (wisely) the investors (long only) are now the ones to take the pain, with earnings significantly under pressure and limited further divestments, I have to wonder if RDSA will be on the acquisition trail very soon, there is some very well-placed gossip of a very large acquisition. Over to UBS to get the ball rolling. Over to the Industrial Engineering components to react appropriately. 

Glencore (GLEN) appear to not know what to do with their coal operations. Glencore considers cuts at South Africa coal unit Optimum, having tried closing its Australian operations for 3 weeks, why did they bother opening it again? Now they're considering South Africa (RSA). 

GLENs asset classes should be considered tier 2. Over to GLEN to meander through with an inconsistent strategy. Had GLEN had the understanding of the market like they should do, the only benefit was to the short-term price where as soon as the news of the restart came the price gave up any support. We'll blame China for the thermal coal prices, rather than the entire change in global demand. The one saviour may be that RSA could be compelled to buy / take these struggling assets off miners hands to shore up the ailing economy, with the Rand like to depreciate further there's going to be a few bargains*.

For those whom dislike the shorters, they'd be wise to check the prices of PDL (Petra Diamonds) and Gem Diamonds (GEMD), the market has awoken to the fact the sale of Antwerp Diamond Bank to a Real Estate company (Yinren Group) didn't go as planned (a year ago). 

Of great significance, Shanghai, Hong Kong shares fall as China launches new probe into margin trading China Securities Regulatory Commission (CSRC) perhaps have found something in the alleged routine checks. 

Kaz Minerals Q4 production report from Roger Bade gets the chocolate teapot award. For myself, you'd be rude if you didn't agree there is no guidance on currency or costs. The market has to look over its shoulder at the all in net cash costs of $2.04/lb (not all in costs circa $2.75/lb EMC estimate) of the interims last August. With prices stabilising and likely to appreciate over the next 12 months, save for more economic woes and the Greek issues, plus Bozshakol Copper Project and Aktogay Copper Mine coming on stream there should be an element of knife catching now. 

Kaz's debts should not be ignored with the Chinese Development Bank (CDB) funding there's room for discussions. Kaz location to China is obviously strategic for both parties, time to start considering the positives.

Atb Fraser

Morning Mumble: Wafers...treading on thin ice &

Good Morning,

Hanergy Thin Film Power Group will be in the press a lot over coming months be it a squeeze or drop. The FT runs with Breakneck growth of Hanergy raises question. It’s a different twist on the repeat in the solar cycle for China. There's been significant consolidation, but do the earnings and receivables having a similar whiff about them. It’s a tightly held stock with the founder holding circa 70% of the stock, 5% out on loan, there could be a difficulty covering any short positions in a further squeeze.  

The article does not go into the trading elements on the market, Hanergy's (HNGSF) price has appreciated by a significant short squeeze. A stock which most traders have been waiting on the side lines to about turn and ride down circa 80%. 

For those not short-selling of any form HNGSF is one for the packs, its already at a pivotal point and the shorters have (please note past tense) clambered over themselves to obtain stock. This stock is worth no more than 1.30HKD on a good day and the FT will no doubt be reporting in due course about its share price movements in more detail. 

The accounts are not the only issue with HNGSF. Would HNGSF like to clarify what development grants are within the accounts including any Government payments? HNGSF's position may also be fuelled by the closure of positions that had been previously rolled over in the Chinese brokers now under review and suspended from taking new clients? Of course the China Securities Regulatory Commission (CSRC) inspections will find no issues at all...but with Shanghai and Shenzhen holding around $175B of leverages shorts it does not bode well if the industry got a regulatory slap. 

HNGSF as a listed solar companies is unusual, due to its HKEx  listing. You do not have to be too shrewd to find a way on to the train. Normally OTC stock via NYSE, or alternative derivatives but its globally available via even the most basic retail spread-betting portals. 

One illiquid delayed trade that has been been good for long until the trend now being at significant risk is the CSOP CES China A80 ETF (SEHK). Fairly simple product and one that mirrors Chinese Pref A Equities. With Chinese industrial profits falling, the market is falling back/stagnating until further stimulus is announced. 

In the land of the AIM, it’s amusing to see the markets pricing in so backward with Mosman Oil and Gas (MSMN). For those readers now aware of MSMN, (EMC: Up the creek), if you know a long holder, it might be wise to lock their drinks cabinet and submit them for drug testing. Is there any reason why this stock is above 2 pence? If you are wishing to email about MSMN please don't the sympathy departed in December 2014. 

We have another, Bagir Group (BAGR) (EMC Bagir Group May 2014 Sarcasm) today with their trading update , which comes with no surprises. Ever since the IPO the warnings have come out, the revisions downwards and the company I suspect will at best break-even. Listing at 56 pence, there's not much further for them to go. (Disc: no position now). There should be some serious questions asked about the timing of the BAGR listing and when they knew about the material downturn in trading so shortly after listing, from memory 1 month after listing a warning was out.

The disparity between Brent and WTI is not without sense, with various opinions going round about $50/bbl being the new ceiling or floor. If $50/bbl is the new floor, how is WTI trading at $45.47/bbl and Brent $49.06/bbl. 

Iron ore really starting to put the boot in on the listened smaller entities, those with higher leverage FMG (Fortescue Metals Group) and Atlas Iron (AGO: ASX). Whilst it was with some hilarity someone attempted to point out why AGO's a buy based on dividend yield. If there is one? Christmas was your exit, you've missed the boat!

JMAT (Johnson Matthey) today give the Q3 trading statement. The refinery additives and diagnostic division is going to come under further pressure being reliant on the petrochemical industry. The industry is currently sick as a dock and expenditure being scaled back, why would JMAT be exempt?

The outlook for the car and haulage industry varies but the majors guiding to a decline in production of circa 1% and as a result a drop in earnings, stagnation is likely for JMAT at best until the cycle changes. The technology premium for JMAT should be under review. Emission Control Technologies the kingpin of the company is reliant on on industries peaking or little growth. There seems to be an echo of EMC just getting it write (scuse the pun) EMC JMAT above its money and under pressure. One could argue there’s no viable benefit in holding JMAT until oil is 40% up…JMAT still missing their AAL (Anglo American) fees! 

Little time for the other items...

Atb Fraser

Thank you for the well-wishers for my daughter, she's not playing again today and didn't sleep well. Being off on business soon I hope she recovers from the lurgies. 

Morning Mumble: Anglo Pacific belated...

Good Morning,

My daughter's bug impacting on the this mornings items slightly, where she wanted to sit and comforted with honey and lemon. So the world stopped for 5 hours and now back to normality whilst she sleeps or until she wakes.

A few weeks ago EMC Anglo Pacific Isua license & General Nice Development Limited was announced by all and sundry but not the royalty holder. Whether they had additional news or not, it would have been sensible to have updated the market about any discussions. If APF's Isua Project lien was on the title (the norm), irrespective of ownership, APF's royalty should have been good. APF belatedly update on the Isua Project being sold to General Nice Development. 

It should be noted the lack of a reversal in the $15M (write-down) and the absence of any impairment for the loss of $30M for a change in ownership. Anglo Pacific's assets are a play on a bull market, the price "looks" about right for now (but). Investors may have their patience significantly tested if Rio Tinto has a change of mind as APF's fortunes are expectant on the performance of Kestrel  (update 21st January 2015). It does show there's some potential but APF has not exactly warmed to the investors. Judging by Rio's intentions not to lose market share APF will benefit. Its looking like its time to turn just a little positive on APF.

As a seller of GEM Diamonds (GEMD) yesterday (EMC) they give a Trading Update for Q4 2014, with deterioration in prices, near 18-24% pending on view. The contraction in part is a 45-62% reduction in financing by the Antwerp Diamond Bank (ADB*) that seeks to exit the sector. With buyers being sought and opportunity being seen by investors this contraction is likely to go through but improve with June/July 2015 *(EMC forecasts) likely for a fuller recovery; save for significant changes in global economics and Russia.  

GEMD sees this trending going forward into Q1 2015. With the slack yet to be filled by ADB* it will take some time for a recovery in finances for the market liquidity, with a risk the traders preferring the absence of speculation with greater upside from the lower prices. The concern being that Petra Diamonds (PDL) seems to not consider the ADB exit of  the mark as significance. One would expect them to be aware of this as they have an office in the International Diamond Council (IDC) Building in Antwerp.

With circa 70-80% of diamond firms having accounts with ADB its wonder prices held up so well. An ending of tradition that's last since 1934, why KBC Bank N.V (the parent) couldn't find a buyer for the portfolio and ADB as a whole.

First Quantum Mining (FQM) update on its production and sales for the three months and year ended December 31, 2014 and production and capital expenditure outlook for the full year 2015. Over to FQM's First Quantum's CEO and Chairman Philip Pascall, 

"The financial and commodity markets have started 2015 with high volatility on concerns about the global economy, demand for natural resources and companies' liquidity positions. As a result, our share price, along with others in the sector, has been materially affected. While we have high confidence in the mid to long-term outlook for copper, we are mindful of the current concerns.  As always, we pay close attention to the Company's financial position to make sure there is sufficient flexibility despite having an active project development pipeline.  At Cobre Panama, we have substantially reduced the planned capital expenditure for 2015 to $600 million without compromising the project's progress. We also maintain strong and supportive relationships with our principal banks that have worked with us throughout the development of the Company and through several economic and commodity cycles,"

Zambia's Kansanshi's mine (FQM 80%/20% Zambia Consolidated Copper Mines (ZCCM) is still hampered by smelter capacity. Things are progressing with first pour at Sentinel (also Zambia) and forecasted production of 150-200k/t's later this year (circa August). We'll shudder at the costs per lb which must loss making at the current price. 

Then in December (2014), the atmospheric leach tank at failure at Ravensthorpe (Nickel) (FQM 100% Western Australia) doesn't bode well either. Quite how one scales back $600m at Cobra Panama (copper 80% FQM/20% Korea Panama Mining Corp (KPMC)) without compromising the projects progress questions the previous expenditure. Its wise to be picky, but common-sense is never absent from investments (certainly not here), then why were they spending the extra $600M? With production on the decline in the final quarter, sales in copper were only modestly lower than the previous year (consistent with global trend). At $2.54/lb for copper, the market will ignore the woes and buy into the stock. 

Iron ore depreciating and Fortescue Metals Group (FMG) (Why iron ore won’t rebound any time soon). having a moment of carnage before recovering on the ASX with Rio and BLT having the knife put to them as well. With the price well dropping in futures a further 5% the market might need to revise price expectations. Can you convert bulk shipping into a floating production, storage and offloading (FPSO) facility? Please note the sarcasm. The FT ML fans will of course prefer Neil's commentary on the topic Iron ore falls to lowest since May 2009 on weak China demand. Implications for steel anyone?

Goldman I don't think expected their short-term bullish comments on gold to be so short with the drop. Goldman Sachs See Short-Term Strength In Gold, Remains Long-Term Bearish.

Who'd have thought Afren at near 6 pence...anyone!?!?! Yes, proudly here EMC: Evening Bolt On: Afren & MPI + Alleged CU Chaos (Investments). Today's update validating some shrewd positions with a Review of Afren's Capital Structure out today its reading like a slow motion train wreck. 

The no news but sensible decision by United Utilities (UU.) to accept the final determination. With the RPI target on dividend being a comfort to the dull goliath investment funds wanting income, the price is about right. Although the wise will have under review due to the appreciation over the last 12 months. Private Equity and Sovereign Wealth Funds will now be able to cast an accurate rule of the likes of UU. and SSE.

Atb Fraser

Antwerp Diamond Bank (ADB*) is owned by KBC Bank N.V and unlisted, EPIC attributable for the use within the article and not associated or inferred as being to another company. 

Pm bolt-on: Duncan Fox New Year's Direction.

EMC: Duncan Fox's Tesco call & a little bit more to say. Having sat on my hands for near a month when I found out. Its with great pleasure that Duncan has moved over to Bloomberg Business Intelligence covering consumers and retailers. So one hopes you'll see Duncan's work around, making sometimes brave calls but giving honest and common-sense opinion. All the best in the new role Duncan with circa 30 years under his belt he will certainly be an asset.

Atb Fraser

Morning Mumble: a euro thrown across the bow of Bourgeoisiem, Petra Diamond's (PDL), GEMD + Grocers

Good Morning, 

There shall be a few sore heads in Greece today and Troika's headache is just starting. Fear not, you will not find the in-depth implications or thesis on Greece leaving the Euro here.  The risks are somewhat being ignored, the outcome for the rest of Europe may be more significant than the press and Government's acknowledge. Simply put, if one feels like a kicked dog in the corner, even the most placid of people get up, fight or leave.

You'd expect nothing less to read the risk aware view here. The EU would be wise to gauge whether Greece is part of a trend that is spreading in popularity across Europe. With the increase in extreme views in the UK and across Europe there is something that the EU isn't addressing that is causing discontent. Greece, as the potential bellwether of voters across Europe warning. After all, there's a little bit of extremism in all and it requires groups to create trends for people to jump on the bandwagon and turn the switch on for the moderates. Examples being UKIP, where the other UK parties are adopting moderate attempts at similar policies.

Greece may have been the master of its own destiny and financial distress, now it would appear they are again, BBCAnti-austerity Syriza wins Greek election. The global assessors will ignore why Syriza has won this election (via coalition) and focus on the financial implications for the EU. 

The Greek elections are being misunderstood by the markets. Greece is blamed for the slide in the Euro, oil and commodity prices and not the US inventory levels being the highest in 85 years nor Saudi's views or business as usual. Greece should be viewed as a potential indicator of political fashions and trends. This is likely to have greater implications than any financial damage and benefits the European Disunion. 

The jury for gold appreciation is out for the time being on the Greek elections with the implications in oil already being misunderstood. The flight to safety as Syriza get their feet under the table by renegotiation and face-saving of greater importance than financial prudence. Surely years of pain for a stronger economy over the longer-term is better; we have prime examples of excessive spending under Labour Governments in the UK. A quick perusal of historic UK government borrowing will clarify the position.

It would be wise to revisit EMED's projections before spending all those gains on the final permitting being obtained. With copper catching a cold in Asia with little support for base metals (absence of long speculation) trading at circa $2.46/lbs, EMED's return for investors now needs to be considered appropriately. The long-term view being if they can survive this market and minimise costs now they're likely to go from strength to strength. Cashflow will be welcome but how much of it remains the question. 

As Roger Bade points out this morning the price assumptions in the Technical Report from 2013 (here) might need a few revisions. To quote EMED (Page 9 Tech Report), "A copper spot price assumption of $3.50/lb used in the projects economics analysis compares to relative current market copper prices of $3.70lbs ($8,200/t) and a trailing 5 year average above $3.00/lb.” 

When reading through the technical report to net present value (NPV) if one was to apply a 12.5% discount, the project would be currently losing money at sub $2.50/lbs. Estimates (my own), suggest it would be better to increase to 9m/t p.a. and raise a full $254M, to fund through to larger expansion and reduced costs that "could" be completed by end of year two. The funding would give viability to the long investors and transparency. The relevance of copper has an impact on the secured loan facility that was able to paid in copper subject to the price being above $6,613.86/t, although there's still time for the market to recover it would be wise to acknowledge these risks. Over to the market to be despondent on this…5m/t's is simply not viable in the current market and outlook.

Anglo American (AAL) shareholders have finally seen sense, in fact the whole sector has...can we see some realistic pricing to entice longer-term shareholders into the stock. Over to Credit Suisse with their preferred AAL and RIO (Rio Tinto) for a little review? We hope AAL can find some muppet for their Dawson and Foxleigh mines l. With Q4 results due 28th Jan, we can look forward to something spectacular. 

Petra Diamonds (PDL) have announced what the market knew in terms of prices softening but maintaining a common-sense. It's hoped the dividend will provide some hope for the stock, but this will be unlikely today. No matter what you call it, it’s a revision downwards, over to Awal Bank SA to give it another kicking...with 13.2 million shares needing a home. As a result of PDL, I decided to sell Gem Diamonds (GEMD). 

For those supermarket/grocer investors and the people wishing to expose shorting funds, it would be wise to read the Delhaize Group 2014 revenues and preliminary results. Turnaround stories in grocers are possible as shown by Delhaize Group (Euronext Brussels: DELB) & listed NYSE if you want to play Euro/USD arb. DELB was a prime shorting candidate a 3+ years ago, it's now recovered, with results coming in strong today the longs in the recovery are benefiting. With Europe likely to be the indicator of how grocers recover it would be wise to follow a few including Carrefour. Roble S.A. yet again having a nice coup back in May 2012 (See: EMC Short Sellers) 

Carrefour could just be coming in to play, Les Echoes (The Moulin family owners of Galeries Lafayette increasestake in Carrefour to 9.5%) and the English version, via Reuters. Whether the Moulin family increase their stake further is another question. They say no others have a differing view. 

With most aware of the Igas Energy debacle, Statement re Finance Facility, there's a gossip of some large bets going in! Better late than never...

Atb Fraser

Morning Mumble: CU under pressure in Asia and China, WAND (cashflow warning?), ENQ (the Coup) and Wolf (corrected)! + Food deflation is officially here!

Good Morning,

A brief one from me today with the luxury of time not being afforded this morning. People should organise meetings well in advance, instead of at 10pm the night before!

Asia and China is seeing higher volumes of copper, the perception is this is likely to be shorts, however it may actually be hedging for the larger boys, the three (Red Kite, GLEN and Trafigura), and the consumers of the commodity. Trading $2.55/lbs or $5621.78/t so just a smidge lower but volumes are up...panic stations for those over-exposed with quite a few bets going on for $2.11/lbs or $4673.79/t. Why $2.11 is confusing but perhaps time will tell. 

Having been short on WANdisco (WAND) from some higher ground, there's perhaps a reason to review this and jump on the bandwagon again. WANdisco's proposed placing really says the cashflow is not there. Its worth some analysis as WAND may not have the size to be viable on their own. Perhaps, if rumours are correct WAND should have accepted the offer earlier last year. 

Wolf(WLFE) Wolfe Minerals building activities update shows things are going along swimmingly. With commissioning for March 2015 and production due in August/September 2015, the appetite for this stock should progress. The Chinese market in tungsten down to circa $291/289 APT (Ammonium Para-tungstate) will give Europe an indicator of next month’s prices. 

Enquest (ENQ) today have update the market of their 'resilience' with trading and operations update showing the covenants have been reset. With rumours of a fundraiser being around for a month now, with little appetite previously, will ENQ be pressing that button now? I doubt it...the market may just reprice ENQ by Monday. Over to ENQ: Additional Information

Funding. In 2013, EnQuest entered into a revolving credit facility ('RCF') of up to $1.2 billion committed, plus a $500 million accordion feature. In light of recent low oil prices and in order to provide flexibility for EnQuest's capital investment programme, the RCF lending banks have agreed to relax the existing credit facility covenants. The net debt / EBITDA covenant has been increased to 5 times and the ratio of financial charges to EBITDA is reduced to 3 times, both until mid-2017. As at 31 December 2014, EnQuest's net debt was approximately $1.0 billion.

2014 production, revenue and EBITDA. EnQuest achieved provisional production for 2014 at the top end of its guidance range, 28,267 Boepd, up 17% on 2013. Revenue is expected to exceed $950 million and EBITDA is expected to be in the range of $530 million to $580 million.

ENQ with the appreciation of oil (as should be considered) was creating greater downside risk than upside. The disappointment being I was unable to get out of one position. So the Atlas Iron holders can cheers as all the profit disappeared saved only from a loss by the tighter spread from a loss. Will reappraise...a very good coup for ENQ. 

Food deflation is being seen by Premier Foods (PFD) trading update, worth a read whether you have a position or not. 

Atb Fraser

PM Bolt On: FX QE ECB KMR...Boron (not boring), what a steal!

Good Evening,

The ECB QE announcement was and did benefit the market (some quality) and dragged up some of the dross as well. Gold attempted to anchor in at $1310/Oz. and failed miserably (for now), with a good % of the Au market cashing in some very stale positions the market will look for further direction. Already the bulls are predicting $2k/oz. again! The Copper malaise continued ignoring anything QE, in fact shrugging the news off and dropping a cent or four to $2.57/lb circa $5665.87/t. 

The common-sense trades were FX movements and its now over to the market to eke out the beneficiaries of the ECB QE. With earnings under pressure from lower commodities, factory gate and exports, the jury for the ECB to cure the EU woes is out (myself included). 

Is it time for China to dump steel into the EU to suppress prices for longer and deflate consumer prices. This steel will of course be boron free (read as Tax Rebate) but there are limited alternatives with the Chinese market being awash with it. The surplus with the addition of boron (whether it was or not is another question) had previously made steel a competitive export (even for the poor performing mills) because of the 9% boron steel tax rebate that has now been cancelled. 

Russia has the potential to take up this strain from China, with the need for FX/Earnings Russia has been given the best headwind to obtain market share in hot-rolled steel exports. Russia has a weak Ruble () and Chinese contraction in steel exports in the short-term, Russian steel could be on to a winner! Evraz? OAO Novolipetsk Steel? Severstal? One wouldn't want to be holding the Indian equivalents, Tata’s costs are already difficult to manage, no market Europe for Russia? Nevermind India will do. Indian producers may become more bullish if the $1:56, where pricing will impact on Russian exports to India. .

The Chinese steel exports may contract in the short term, but Europe may find themselves the beneficiary of some cheap steel from China! With iron ore having plummeted and searching for a balance in pricing, steel prices declining 14%, if the two continue for much longer both steel and iron ore production may go into decline as well.

KMR (Kenmare Resources) proved the perfect trade today with the traders hearing the gossip of negotiations nearing an end that will give some assurances to any offer Iluka Resources wish to make (or not). KMR, as I've stated for a while at circa 2 pence becomes the pure down side protected/limited trade long. 

There's some loose gossip that Iluka Resources are not interested in to too many of the current senior management. How reliable this is is another matter and untested, but severance might be a stumbling block, could it go hostile? I doubt it as the creditors want more clarity on repayment and return on 'investment'. Iluka Resources as the larger entity will provide this if combined. With the chatter of 12 pence, it's certainly not for the faint-hearted 

Atb Fraser