Central Asia Metals Share Discussion Threads

[arf dysg] 15/8/2018 12:37

topaz frenzy (2051, 2047), if you believed that, you would take out a massive short.

[mount teide] 15/8/2018 12:30

The CFTC Short Copper Position chart is a useful guide as to future pricing trend.

From March/April 2018 the number of open copper short positions rapidly built to an all time high a few weeks ago at over 89,000 contracts - taking out the 86,000 peak hit during the copper market recession low in 2016.

The chart has since fallen back to circa 83,000 contracts suggesting the bearish sentiment may be at or close to a peak.

[topazfrenzy] 15/8/2018 12:28

It does not mean this will not go down to £1.50 so you can sit it out if you like but seems a bit stupid

[andyj] 15/8/2018 11:53

Yes there are some holdings that when they fall you feel no intrinsic worry, but more of a desire to add more, CAML is one.I recall during the depths of the last commodity price crash and the oil price crash, when the price of extraction was above the market price. They just stopped extraction and of course the price rocketed. I posted this message on the BP board then and it applies here now.Ultimately they have what we need.

[petenorrislos] 15/8/2018 11:50

At what point does the falling copper price threaten the dividend? Thanks all, esp MT for insight below.

[topazfrenzy] 15/8/2018 11:16

£1.50 beckons

[mount teide] 15/8/2018 11:05

Since 2006, the only time the spot copper price has been below today's price was very briefly in 2008 during the global financial crash and in H1/2016 at the nadir of a brutal 6 year industrial metals sector recession.

From an investment perspective history has shown both occasions were an outstanding opportunity to take exposure to the copper market.

One positive of this recent metal price weakness from a long term investment perspective is that it may well delay/slow down the implementation of some of the capital expenditure planned and/or proposed for production development - which as we know has fallen of a cliff since 2013(down circa 65%).

Latest research suggests even if all planned 2018 copper market capex goes ahead it will only lift the total production development investment 5-10% above the decade low levels of 2016/17 levels. This is way, way down on what is required this year and over the next 5 years to address a forecast 5 million tonne per annum copper market deficit by 2024/25 - my forecast peak for copper pricing during this new recovery stage of the latest long term copper market cycle.

Before this recent industrial metal market sell off, Citi had predicted a copper market peak for the new market cycle matching the $10,000/tonne seen at the peak of the last cycle in 2010 - i suspect the last three months copper price action could well lead to Citi's forecast proving conservative, particularly when considering that Codelco the World's largest copper miner has stated it is going to spend $25bn over the next 5 years at the rate of $5bn a year, in an effort to just MAINTAIN current production, never mind increase it, such has been the drop in head-grades at its major Chilean mines over the last decade.

Falling head grades is now a serious problem affecting most of the world's major mines that can only be reversed though a massive increase in capital expenditure and time - since it takes up to a decade to bring a new mine into production and many, many many years to access deep underground reserves at existing mines.

When the average head grades were 1.5%, a small fall of 0.1% meant they had to mine another 6.6% more ore to maintain production output. At the the current industry average of circa 0.6% head grade a drop of 0.1% means mining and refining another 16.6% of ore just to stand still - costs will increasingly increase exponentially at many of the world's largest mines if as forecast head grades continue on their long term falling trend.

With global copper demand predicted to continue increasing at around 2%-4% over the next decade to deal with a forecast 1 billion increase in the world population together with the huge population SE Asian Nations continued industrialisation of their economy's and modernisation of their transport infrastructure and residential property, a perfect 5-10 year storm is brewing in the copper market before we even consider the impact of the rapidly increasing demand from the first world for green energy initiatives and the electric vehicle revolution.

From the perspective of a long term investor it is rare to come across a commodity market where such a huge divergence is continuing to build between the forecast growth in demand and the ability to supply.

Citi's latest copper market research concurred with work published earlier this year by metal sector specialists CRU - Citi described the current copper market as a long term buying opportunity and told its clients to: "Prepare for a decade of Dr Copper on steroids" citing "lack of mine supply growth" as the driving factor - since it cannot be turned on and off like a tap and that the current and planned level of capital investment in new production is going to be a case of too little, too late to prevent a huge deficit developing in the market over the decade ahead.

AIMHO/DYOR

[scottishfield] 14/8/2018 21:42

Thanks for that MT, much appreciated.

[ken tennis] 14/8/2018 18:24

Tiede thanks for good info I hold here already and sold some BATS today I made good profit on them and collected divi but think they're struggling to move higher so will probably top up here tomorrow.
This is a good company and will prosper along with its holders but we need to be patiant say 3 to 6 months. Copper can't stay this low forever with demand on the increase.

[briggs1209] 14/8/2018 18:20

Well my purchases at 2.50, 2.40 and 2.30 leave me overweight here at 30%. If it was not such a straight and easy to understand business I would not have gone so overweight. It does feel a bit like Shell in 2016, solid divi, great company, easy to understand - conviction buy

[mount teide] 14/8/2018 17:29

Spoke to the company late this afternoon - they are as disappointed as us with the recent share price performance - and say the only comfort is that the performance is largely consistent with most of our peers(Antofagasta was off another 7% today).

They speculated the share price weakness was probably down to a combination of the ratcheting up of trade war fears(almost certainly overblown as evidenced by China importing copper ore/concentrate at decade high levels), recent dollar strength and a period of industrial metal market weakness after a very strong 18 months through to Q1/2018.

They say production wise the business continues to perform in line with expectation, as evidenced by the reported production figures for first two quarters, and are looking forward to updating the market as to the progress made via the Interims which will reflect the much stronger average metal pricing in H1/2018 - the Interims will come out on 19th September (they said the website was updated yesterday with this information - i've yet to check).

[zebbo] 14/8/2018 17:25

Another example was RIO in 2016 at ~£16

[zebbo] 14/8/2018 17:20

This is where real returns can be made, as you point out MT, Shell a perfect example. As long as we can produce cheaply and maintain the divi all is good. Not sure what the numbers are in order to maintain the divi at current levels, think its around $2 per lb for copper. Will let someone more knowledgeable provide the correct numbers. No idea what the ratio is for the other metals we mine

I'm all in at ~£2.50, so got my timing wrong, but felt this was a cheap entry point at the time. If we do hit £2, I will free up other funds and go very top heavy CAML.

What really gives me confidence here is the underlying demand for copper, cheap production and a very well run company. Whats not to like...except the current share price if your a holder...lol

[andyj] 14/8/2018 16:51

That is a very good point. Where the fall is due to the cyclicality of revenues, rather than structural or company specific concerns, there lies opportunities for the patient.

[mount teide] 14/8/2018 16:19

andy - Shell was offering a 7.5% dividend in H1/2016 on oil price weakness - those that filled their boots not only got their dividend but 100% capital growth during the next two years!

[andyj] 14/8/2018 15:45

A 7.2% dividend yield now. A red flag or a bargain investment case?

[mount teide] 14/8/2018 15:44

Shanklin - i agree - the price correction all the way down from above 300p has been on very modest volume.

The average daily trading volumes over one week, one month and three months are all lower than each other and lower than the daily average over a year.

The broker consensus dividend forecast of circa 17.5 is now close to 8%.

With the Chinese importing multi decade record volumes of Copper ore/concentrate over the last three months - the demand from the world's largest consumer is very robust; and is likely to stay that way for the foreseeable future after the recently announced major programme of stimulus by the Chinese Government.

[handykart] 14/8/2018 15:28

Also large earnings drop at Copper miner Antofagasta.

[shanklin] 14/8/2018 15:20

HK

Obviously, copper etc price drops are not helpful but the fall still seems excessive IMHO.

[handykart] 14/8/2018 15:14

Price of copper. I think . Plus Trump sanctions.Which indirectly help Copper price to fall.

[shanklin] 14/8/2018 15:05

I would like to understand more about what is driving the selling here. The share price fall seems completely out of step with CAML's prospects.

[losses] 14/8/2018 14:16

Looks to heading for 200

[mount teide] 13/8/2018 12:07

As expected, with the Baltic Dry Index rising close to 50% since Q1/2018, the world's largest shipbroker Clarkson's has experienced a stronger Q2/2018 across most of its main shipbroking and sale&purchase markets.

The oil tanker market although still the exception is now seeing green shoots, moving up strongly off multi year lows; vessel charter rates have increased by over 100% since the start of Q3/2018 which should bode well for H2/2018 and 2019.

Likewise the oil services sector, also recently made a bottom and entered a new cyclical recovery phase following a brutal 5 year recession which brought the industry to its knees.

Clarkson's highly expensive takeover of Platou some 3 years ago - a specialist oil tanker and oil services sector shipbroker - could not have been more badly judged/timed but, following an awful post acquisition period should now start to generate better news and results going forward. Oil tanker rates dropped over 10 fold peak to trough following Clarkson's takeover of Platou and the oil services sector completely collapsed, with large sections of many major fleets put in to long term lay-up.

The Clarkson share-price which briefly dropped from £30 to below £20 following the profit warning in Q1/2018, has recovered strongly since, hitting £29 this morning following this morning's Interims

With the shipping markets forecast to be close to a demand/supply balance for the first time in a decade in 2019, I'm maintaining my earlier call of a £100 Clarkson share price by 2023/25 as the shipping markets continue to strengthen into this new shipping /commodity cycle recovery stage, which like all previous recovery stages will come with the high stomach churning volatility these markets are renown for.

The shipping and commodity markets may not be for the fainthearted, widows or orphans perhaps - but for those with the constitution to withstand the volatility, with careful stock selection the once in every 15-20 year recovery/boom stage of these long term, highly cyclical markets offer investors the opportunity of tremendous multi year outperformance compared to the wider market indexes.

[mount teide] 13/8/2018 09:47

PricewaterhouseCoopers recently published 2018 Mining Sector Review is a well researched report and worth a read.

PWC - Mine 2018 - Overview



The world’s 40 largest mining companies have delivered an impressive financial performance in 2017, increasing revenue by 23% to USD$600bn. The report confirms an upswing in the mining cycle, which comes on the back of rising global economic growth and a recovery in commodity prices. Helped by astute cost-saving strategies over the past few years, margins and cash-generating ability has improved significantly, leading to a 126% jump in net profits.

Our 2018 outlook indicates that the Top 40’s improved financial performance will continue as companies continue to benefit from this upward momentum in the mining cycle.

'For the world’s Top 40 miners, 2017 was a remarkable year. Thanks in large measure to the continuing recovery in commodity prices, fuelled by general economic growth, revenues rose dramatically by 23 per cent. At the same time, the cost- saving strategies of the past few years delivered, with margins and cash- generating ability improved as well, leading to a sharp increase in profits. Capital expenditures remained flat. With liquidity concerns that were still lingering in 2016 mostly resolved and balance sheets strengthened, companies have the flexibility to act.

Across the board, a heightened focus on safety in operations, reducing leverage, and avoiding aggressive investments in new capacity indicates that management is proceeding in a measured and deliberate way.

For the first time, we have included a 2018 outlook. Our outlook indicates that the Top 40’s improved performance will continue in 2018, as companies continue to reap the benefits of the upswing in the mining cycle. The critical question facing leaders and investors is how they will respond to their current run
of good fortune. Will they give in to the impulses that have spurred aggressive actions in the past, or will they continue to pursue a path of safety first?

Perhaps the most significant risk currently facing the world’s top miners is the temptation to acquire mineral-producing assets at any price in order to meet rising demand. In the previous cycle, many miners eschewed capital discipline in the pursuit of higher production levels, which set them up to suffer when the downturn came.

While we expect capital expenditure to increase next year as companies implement their long-term growth strategies, miners must be careful to maintain discipline and transparency in the allocation of capital. They need to resist the urge to pursue projects or acquisitions at any price, and instead, focus on mining for profit, not for tonne.

Miners may also find themselves tempted to give in to stakeholder demands for a share of the success. Given the sector’s strong overall performance, this pressure will come from multiple directions. As they view the improving results, shareholders, governments, workers, management and host communities will all be ramping up their asks – for higher dividends, higher taxes, and higher wages. Miners need to strike a balance between near-term demands and their long-term vision to deliver value.

Indications are that this current cycle has several more years to
run. Steady global annual GDP growth over the next five years, along with significant infrastructure growth in emerging economies, is expected to underpin continued demand for mining products. But the operating environment is not without significant headwinds: geopolitical uncertainty, regulatory risk, technology and cyber risks, and social licence risks are all on the rise.

So while the future looks bright for the Top 40, long-term success is by no means assured. Both risks and temptations loom and miners will need to stay focused and deliberate in the pursuit of their long-term goals to create value for all stakeholders on a sustainable basis.'