Avocet Mining - shocking financial journalism by Shares Magazine

Below is an excerpt from a piece by Shares Magazine’s contributor Dan Coatsworth that is a stark illustration as to why it is not just “anal”ysts who should be struck out of the industry given the collective value destruction they create (see post below on the Vampire Squid - Goldman Stinks).

Here’s what he actually printed on Avocet - 

“A quarter of the miner’s production is loss-making, representing the 33,000 ounces it must sell at $950 per ounce under the hedge agreement each year. This is nearly half the price it would get selling into the spot market where the latest price is $1,648 per ounce.

It has 173,250 ounces left to deliver under the hedge agreement. At the $950 selling price, this equates to a $164.6 million liability. This is considerably larger than Avocet’s $93 million (£60 million) market cap.”

Anyone reading that and acting on it through fear, has reason to be aggrieved with Mr Coatsworth as the actual liability is not simply calculated through timesing 173,350 by $950 as it appears he as done, this is in fact madness to make such an elementary mistake, but in fact it should be calculated one of 2 ways - 

1. Either through the difference between the hedged selling price ($950/oz) and the cash cost of production (around $1100/oz) - in effect this is the loss to the company whilst the hedge is run down over the life of the hedge and equates to a manageable $26m or

2. As appears to the case in Avocet’s case through buying back the hedge at market prices which around $1650/oz results in a loss of circa $700/oz and so a loss of $121m. However, the true loss over the life of the mine is not in fact of this magnitude as of course Avocet will be selling production at the new spot rate and therefore the loss reverts back (assuming spot remains around $1650) to the $26m.

We believe the market has monumentally over reacted to Avocet and at the current price of 26p it represents the best buy in the global gold mining (producing v exploration) sector. There’s a difference between short term difficulties and long term problems and we think Elliot Advisers - the hedge fund carrying almost 30% of these, will now push for a rival to take them out.

Adjusted book value accounting for the true hedge book loss and reduced Inata reserves at the current price is around 0.35 times - this is a total steal in our opinion and we are buying very heavily. Unlike most other publications, we put our money where our mouth is and certainly ensure we do our homework as our calls in Bumi, Lonmin, ENRC, London Capital Group etc in recent months pay testimony to!

We will flesh out our investment case in the next edition of our magazine due out in just under 12 days and if you’d like a copy then ensure to register on the right.

 

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Additional cautionary signs for the market. Getting ready for the big short...

Regular readers of our blog will know that we have become a little more cautious in recent weeks as the market has had a storming start to the year. Almost all our picks - ENRC, Bumi, LMI, Japan, GBPAUD, Apple etc have been major outperformers and good profits have been reaped.

Well below is a chart of the S&P 500 together with the difference between the percentage of bulls and bears, according to the weekly sentiment survey by Investors Intelligence (II). When the number of bulls is far higher than the number of bears, it’s an indication of a lot of optimism in the market. We can see below that the high levels of optimism have, historically, had bearish implications for the market going forward. Certainly this was the case looking at 2011 and 2012.

Six weeks into 2011, the bulls-minus-bears was very near 40% (circled on the chart) - an extreme measure. The market went sideways after that, before eventually collapsing later in the year and giving back all its gains. Then, in 2012, the market was once again off to a great start, but this time the bulls-minus-bears was much less, right around 20%. The market continued higher and finished the year up about 13%. Currently, the optimism, according to this poll, is the near the 2011 level (marked by the red line). Any further strength going into this weeks expiry of options in the US will be our cue to get aggressively more short (thus far we have been playing it via Put Spreads centred around March and April expiries).

The expiry this week has a lot of open call options around the 1520 level - sellers of these calls will be keen to keep a lid on prices below this level so that they can collect the premium. If however there is a move through here then what is called “delta hedging” will come into play and they could force the market up quite sharply - perhaps towatds 1540. If this occurs going into the close of play Thurs/Fri morning then we will be selling short heavily.

 

Going back to 1990 and looking at those years when the S&P 500 was up at least 2% through the first six weeks of the year and tracking the returns going forward depending on whether the bulls-minus-bears was above 20% or below 20% is displayed in the table below. We can see that the returns are remarkably better when there is less optimism in the market. This is one indicator showing some cause for concern as the market is closing in on all-time highs.

 

Below is a cracking guide that we put together that looks at a possible end date for the current bull run, and also postulates upon the ideal level for one to get long on any imminent correction to capture the last of the returns from this bull market.

 

 

Ora Capital reaches 29% of Ceres Power, only another 0.9% to go...

See below from the latest RNS. I must admit that Richard Griffith (who is a clever chap) CEO of ORA is playing a very smart game here. If he isn’t to bid for the balance equity then they have created a very “squeezable” stock dynamic with a small free-float now and most people still underwater - even those that participated at 1p - as the original purchases were likely much higher (only 11% of the company turned over sub 10p in the last 8 months). They are unlikely to dampen a run in the stock until 10p+.

Perhaps ORA & IP2PO are looking to maintain the new market cap ready for a new equity raising in 9-12 months time and with a few positive RNS’s behind them? Either way for CWR shareholders, it’s only good news (apart from for “Sueyou!”! - where’s the writ Sue?!) - there could be a serious squeeze around the corner.

2012 - Against the odds, a bullish Year For Equities

After a cracking start to 2012, equity markets suddenly turned negative in late March and experienced declines amounting to 20% from their year highs in certain cases. Rhetoric coming from European leaders could no longer sustain the anxiety investors were perspiring, and with a lack of solid solutions to put an end to the sovereign bubble, investors abandoned the stock market to look elsewhere for safety.

Just when everyone was thinking that the worst of the crisis was already behind us, a new wave of concern laid the markets low and caught many off guard. In the end, ECB head “Super” Mario Draghi started a high stakes game bluff that, luckily for him, he emerged the winner in late Summer when he was successful in reflating equities.

The second quarter of 2012 in particular was a really tough one, with many European markets dropping around 7% and the Nikkei more than 10%.  It seemed that everything was pointing to yet another ugly August like the one in 2011 but Draghi’s strong words that he would “do whatever it takes to save the Euro and keep it alive” turned the ship around. With such unexpectedly strong wording, investors bet heavily that the ECB would step in and engage in some kind of monetary easing as the FED is doing in the U.S. with the FED.

Read the rest at spread bet magazine.com

All quiet on the Bumi front... Is Glasenberg about to enter stage left?

It’s been a couple of weeks now since any real news on Bumi and all remains eerily quiet… All the while, the stock remains resolutely pinned to the 260-270p level.

We continue to believe that Bumi presents the best potential Xmas or New Year present in the mining sphere given the £4+ that is presently on the table and the desire of all parties (ol Natty, Bakrie and Tan) to retain the prized assets in Indonesia. One has to accept that they all know the assets better than anyone and the fact that they each want them speaks volumes. Natty thinks the assets worth north of £10 per share, ditto with Tan and the Bakries just need to find some cash…. Which led me to do a bit of digging surrounding the history of Bumi and which does not seem to have been picked up by the financial media…

The Glasenberg connection

It seems the Bakries are friends with global mining billionaire Ivan Glasenberg of yes, you guessed it - Glencore. It was speculated last year in various quarters that Glencore may come to the aid of the Bakries by way of a loan backed by Bumi shares. Hmmm… The Sunday Telegraph reported without citing sources, that Glencore was looking at providing some sort of “quasi-debt facility” to support the family.

At the time of the speculation surrounding the Bakries loan financing and in which they were ultimately bailed out by Samin Tan to the tune of $1bn, various analysts stated openly that Glencore would be an obvious buyer of any Bakrie shares, given that it signed a share swap agreement with the Bakries last year over 4.8 percent of the company and it marketed Bumi’s coal.

Read the rest of this story at www.spreadbetmagazine.com

Bumi update

Nathan Rothschild

Reports in the press today that Ol Natty is close to finalising funding for an additional $270m from investors which looks to be money to be used to buy out the balance 15% of Berau Coal from the Bakries.

Nat Rothschild, the financier behind coal miner Bumi Plc, has secured the backing of mining entrepreneur Robert Friedland for his proposal to unwind the London-listed company’s relationship with Indonesia’s influential Bakrie family.

Mr Friedland, the billionaire who founded Ivanhoe Mines, which developed the Oyu Tolgoi copper mine in Mongolia, has agreed to invest $50m, according to people familiar with the matter. Ivanhoe is now controlled by Rio Tinto, the Anglo-Australian group.

Mr Rothschild, who earlier this month made a counter-proposal to the Bakries’ offer to buy back Bumi Plc’s Indonesian mining assets, was finalising commitments from investors for $270m in equity funding, they added.

He told the investment bank advising the board of Bumi Plc that he had the support of Mr Friedland as well as several other investors, the sources added, and intended to provide further details of his plans shortly.

Mr Rothschild’s consortium is likely to include Hashim Djojohadikusumo, the Indonesian businessman and brother of general-turned-politician Prabowo Subianto, according to a person familiar with the matter.

Mr Rothschild has garnered pledges of support from several existing institutional investors in the group, the person familiar with the matter added, and is in discussions with a large North American pension fund about backing his proposal.

Read the rest of thisBumi Update At http://www.spreadbetmagazine.com

Falkland Oil and Gas sparks to life on oil find rumours

Falkland Oil and Gas, the South Falklands oil explorer, is currently up 17% to 64p, after dipping as low as 55p this morning. The company is drilling the Scotia prospect in the South Falklands basin and an RNS on November 7th indicated that drilling operations would be likely to be completed 4-6 weeks from this date, but clearly something has sparked the company to life out of the blue. The rumours are of a significant oil strike, but facts remain elusive for now. Plenty of volume with hopeful punters piling in. 

Seems to be the day for rumours, with Gulf keystone rising as much as 20% earlier in the day on reports that the court case with Excalibur Ventures had been settled. The shares have settled 8% higher at 192p.

 

Yet another great update from spread bet magazine