Central Asia Metals Share Discussion Threads

[mount teide] 30/10/2018 08:32

Some analysts on the basis of very short term dollar strength are saying that it is impacting oil and industrial metal pricing - they need to do a little research worthy of the name.

When copper and oil bottomed in Q1/2016 after 6-8 years of falls, the dollar index (DXY) was higher than it is today - the DXY has averaged today's figure for the last three years, during which Copper is up 45% and oil 162% to date.

[briggs1209] 29/10/2018 11:48

CAML is my largest holding by far, having bought higher up I have averaged down (which I don't normally do) based on recent presentations and the simple business model.

Bear case for me rides on a couple of issues:

1. Sustained low commodity prices. I could sit tight and collect the dividends but there will be some opportunity cost if it bounces around between 210 p and 250 p for a long period of time. Personally I don't see this happening.

2. Political risk. We are seeing a lot of populist parties being elected who can win votes by land grabs. Again I see this as low (but not zero) risk. I know that the management team have invested heavily and take a lot of care with workers and local population. The odd ex politician on the board always helps.

3. Major mine accident causing shutdown. Not such a big deal with the tailings mine, but this could happen with the new one.

[raggedtp] 29/10/2018 10:43

Thank you, MT, for your analysis. I hold CAML and am very tempted to top up at this level. Anyone got a bear case?

[ken tennis] 28/10/2018 18:39

MT I have just logged on to have a quick look at posts on this board before the open tomorrow and as always your posts are fascinating and give me every confidence in my trades and current holding with CAML.
I am not as studied in the economics of the world climate and the metals market as yourself but very much like reading your posts keep up the good work and enjoy your traveling holiday.
Ps I’m off to India for a month in February next year can’t wait.
ATB Ken

[mount teide] 28/10/2018 14:56

I'm conscious that the junior copper index that i follow has dropped 38% 2018 peak to recent trough - while there may well be further downside - drip feeding funds in at/around these levels should prove a very sound investment over a 2-3 year view.

If like me you can see a copper price in the range $3.50 - $4.00 over a two year timeframe - it is worth visualising what the prospects of high quality copper equities will likely be in such a pricing environment.

The current negative sentiment across the base metal sector which has seen most juniors drop in valuation by around 38% from the recent highs is largely the result of perceived macro issues and totally contrary to the sector fundamentals which are very sound.

As demand for copper continues to trend higher major producers will need to replace depleting reserves. Current forecasts see a very significant supply shortfall begin in late 2019 and continue to quickly widen over the next decade. One of the major factors contributing to this supply shortfall is declining ore grades at the existing mines, along with the low grades of new mines under development and the low level of development resources on the asset registers of the major miners as a result of minimal exploration investment since 2013.

Currently, the economic climate for mid and large cap copper miners to get access to cheap copper resources through deals/partnerships with or takeover of juniors is at/close to the optimum point of the average 15-18 year copper market cycle.

Joshua Hall a highly astute US base metals sector investment advisor is well aware of this and recently published his Industrial MineFinder Junior Copper Index on Seeking Alpha;

It is a very well researched global list of copper juniors with assets/resources most likely to attract the interest of mid/large caps miners. He argues from an investment perspective, it is a historical fact that few juniors get to become mid/large caps but many with high quality assets DO find themselves getting acquired at substantial share price premiums during the recovery stage of each new market cycle.

UK listed Solgold and Asia Met are explorers/near term developers on the list of 15 Copper Juniors on Joshua's IM Junior Copper Index.

It's probably a safe bet that the recession leaned mid and large cap miners now with strong cash flows and looking to fatten up their depleted development reserves, will be currently watching the valuations across the junior sector like a hawk waiting to pounce on its prey.



AIMHO/DYOR

[waterloo01] 28/10/2018 14:45

MT, should be an interesting trip.

Don't disagree with what you say over a 5 year view, I'm just much more negative than you on the short term (which could be medium term) in equities, and am positioned for more falls. I do think copper and probably gold will hold up well, because of the essential fundamentals, however, inevitably all ships rise and fall in these situations, hence why I hope to have enough dry powder to take advantage.

CAML is one I have not cut back and have added to, but until the next weeks/months play out, I'm trying hard to keeping my hands in my pockets. All IMO

[mount teide] 28/10/2018 14:42

GSCI/S&P500 Ratio

For the Ratio to revert to the mean figure of circa 4

Some possible examples:

Commodities remain at current price while S&P 500 tanks 75% (extremely unlikely)

Commodities double while S&P 500 drops 50% ( possible but unlikely)

Commodities treble while S&P 500 drops 25% ( possible over a 3-5 year view)

Commodities quadruple while S&P 500 goes sideways (possible but unlikely)


If Commodities were to drop 25% to close to their previous cycle low it would need the S&P 500 to drop 82% ( would require a global economic collapse)

If Commodities were to drop 50% - it would need the S&P 500 to drop 88% (likely complete destruction of the global economy and decade of depression)


To put into perspective how volatile the tied at the hip, boom and bust global shipping industry has been over the last decade for the worldwide carriage of dry bulk commodities - iron ore, copper, zinc, lead, wheat, coal etc - (95% of all commodity production at some point see's the inside of a ship's cargo hold), between 2008 and 2016 the Baltic Dry Index which measures the cost of dry bulk freight rates via the spot charter rates of Dry Bulk Ships, dropped an almost unbelievable 98.2% peak to trough to the complete and blissful ignorance of 99.999% of the global community.

Imagine your house dropping in price from £1m to £18k! Its one of the reasons why today i can ship a 20 tonne consignment of Scotch Whisky to China in a 40ft container cheaper than you or i could fly there economy class.

[mount teide] 28/10/2018 14:37

Hi Waterloo - been using some of my cash plus profits from GYM(let the original investment run) to continue adding to my copper and oil positions since the wider market looks like it may be in the process of setting itself up for a strong run into the year end.

As a longterm investor - short of a worldwide financial collapse and decade long depression - imo the copper market fundamentals over a 10 year view are as close to a one way bet as the equity markets throw up.

In the event of the US and Europe experiencing a period of softening growth over the next few years(similar to what SE Asia, China and the Pacific Rim has experienced during 2015-2018), then should the mining sector keep capital investment close to the current decade lows it will only increase the likelihood of a massive future spike in the price of Copper.

The highly respected Nat Resources analysts at CRU(they were one of the few to correctly call the bottom in H1/2016) forecast that a huge(5 million Plus tonnes) copper market deficit over the next decade is still likely to occur even if capital investment returns to its pre recession level over the next few years - the inference being to meet future demand the price of copper will need to rise to a level that pushes capital investment to well above the peak of the last market cycle.

CRU's other concern is that the industry spent a serious amount of money looking for new copper resources during the last market cycle and failed to find very much by historical standards - and what they did find was at a much lower overall average grade.

This is the primary reason why the World's largest copper miner Codelco has decided to allocate nearly all its future capital investment to extending its operations at its existing mines into areas with very low grade ore(once deemed close to being uneconomic), since it is proving more cost effective than trying find or buy new copper resources.

Since 1980, 100% of the growth in the global consumption of Oil, Gas and Copper has come from the 88% of the population living outside of Europe and USA. Over 75% has come from SE Asia, China and the Pacific Rim. India now has the fastest growing demand for Copper and Oil.

Since 2015, despite softening economic growth across much of SE Asia, China and the Pacific Rim, their oil and copper consumption has continued to grow strongly. The 38 year oil consumption chart for this fast growing economic region is a straight line at a 45 degree angle - yet the Chinese Shanghai Composite Index since 2015 has dropped 45% peak to trough.

China's and much of SE Asia's economies and Stock Markets have already experienced the correction that US and European economies and markets are due.

As economic historian Niall Ferguson commented - far too many US and European economists and analysts continue to see only a very partial picture by not focusing the bulk of their economic/market research on the 4.2 billion population of China, SE Asia, India and the Pacific Rim - this is going to be their CENTURY not the West's which he believes will, in relative terms, experience managed decline.

As mentioned in the previous post, considering the relative stages of the global commodity cycle and the Western Economic cycle, i would expect to see over the next few years, as in the previous two commodity cycles, commodity prices rise while S&P 500 equities enter a period of sustained correction as a result of rising inflation and interest rates, after a very long positive run.

AIMHO/DYOR

Edit - i'm off to SE Asia, China and Australia for a nearly a month in late November - as a travelling holiday and to update my knowledge of the fast growing economies of this region.

[waterloo01] 28/10/2018 11:17

MT, as usual an interesting and informative post. I agree long term copper and some, but not all base metals will continue to see growth driven by both supply side shortages/costs and demand side growth, however in the short term, miners, especially those with high debt, will be hit alongside most equities in a correction/crash.

I'm keeping some powder dry and ready to put into action, as and when it's clear the correction is over. Looking forward to picking up some long term holds but at better prices.

Cheers

[mount teide] 28/10/2018 10:51

If current commodity market fundamentals and 50 years of stock market history is a reliable guide expecting commodities and their equities to follow any wider equity market correction or economic recession south is likely to be misinformed.

The S&P 500 during the 2000-2002 recession went down 46% and some 4 years later in 2006 was still in correction territory some 20% down. Copper and Oil which had both bottomed in 1999 following many years of falling prices from oversupply, actually went up by 498% and 250% respectively between 2000 and 2006 - A PERIOD DURING WHICH MUCH OF THE DEVELOPED WORLD experienced a serious and prolonged downturn.

How did the mining industry fare?

Rio Tinto bottomed in 1999 at $18 after a 5 year sector recession; by 2006 it has reached $83 DURING A BRUTAL 6 YEAR PERIOD OF HIGHLY MATERIAL LOSSES FOR THE S&P 500 AND, following two further years of boom phase topped out at $155 in May 2008.

Predictably, BHP also bottomed in 1999 at £10.90, by 2006 it had reached £116.80 and, £21.58 by 2008 and topped out at £26.10 in early 2010 - giving investors a 24 bagger plus dividends over a period that saw the S&P 500 return a 20% LOSS plus dividends!


Consequently, this could be the most important chart of 2018:

hxxps://goo.gl/images/VjCz8R

It charts the third generational low in the commodities/equities relationship since the late 1960s. The previous 2 lows following mean reversion were eventually followed by generational highs.

Every low occurred after a general collapse in commodity prices due to excess supplies, NOT TO ECONOMIC RECESSIONS, sharply rising equity prices and a period of strengthening dollar.

After reaching the mean, commodities kept outperforming as equities completed their bear phase. In total, equities collapsed 46% in both 1973-74 and 2000-02 from peaks reached 11 and 8 months prior to the official start of a recession respectively.

The S&P Goldman Sachs Commodity / S&P 500 Index ratio bottomed at 0.89 last June and is now 0.95. A return to the mean of 4.1 would require the GSCI to multiply by 4.3 or the S&P 500 Index to crater 77% or as is most likely the case a relative combination of both.

Equities and commodities have been rising at similar paces since mid-2016 with the latter outperforming the former since June 2017. Conditions are ripe for a strong commodity rally after a 75% bear market over 9 years.

Exploration budgets have been severely depressed and stocks have declined to near decade lows. Metal inventories are down 60% from their 2013 peak and now stand below the 2002-2004 levels; following which prices quadrupled after continually rising 2%-4% demand finally met years of increasingly limited supply.


AIMHO/DYOR

[coxsmn] 27/10/2018 19:41

Agreed. despite the dip in share price at the moment, fy production remains on track and we can continue to enjoy a chunky dividend.

[zebbo] 27/10/2018 18:53

All the industry evidence points to a constrained copper market next year. Who knows what will be lows for CAML will be or if we have already hit the lows. Personally, I am more or less fully invested and happy with my average here. Catching share price tops and bottoms is tricky but the yield as it is + consistency of earnings + lowest in industry production costs. It ticks all the boxes for me

I expect after the US mid terms focus will be on some form of China trade deal. Trade tensions are currently generating too much non-fundamental, macro noise that is keeping the copper price low (exacerbated by hedgies) jumping on the "shorting bandwagon". As soon as trade war jitters start to dissipate, fundamental drivers will take over.

IMHO 3-6 months CAML yield may be back to 6 - 6.5%, with an share price £2.50 - £2.75

[mount teide] 27/10/2018 12:02

Cannot overemphasise the importance of doing your own research - not just on CAML but more importantly the impact that a high copper price environment in the mid/latter stages of the recovery/boom phase of a new market cycle can have and, did have during previous market cycles.

In the last market cycle a very significant number of small/medium scale mine development projects with BREAKEVEN LEVELS IN THE $3.00 TO $3.25, were put into production that a few years earlier would have been totally inconceivable.

TODAY'S $2.75 COPPER PRICE IS EQUIVALENT TO AN INFLATION ADJUSTED PRICE OF $2.37 AT THE PREVIOUS MARKET CYCLE PEAK IN 2011 WHEN COPPER HIT $4.54 - THIS IS THE PRIMARY REASON WHY MOST OF THE INDUSTRY CONTINUES TO SIT ON ITS CAPITAL INVESTMENT HANDS DESPITE A 60% PLUS DECLINE IN INVESTMENT SINCE 2013.

They will continue doing so until the supply/demand dynamics forces the price of copper to increase to a level to make the economics of bringing new production into development cost effective.

[warranty] 26/10/2018 23:08

Further to fall for the market yet I think and I'm looking for sub 180p for CAML.

[eeza] 26/10/2018 19:28

Ditto dips - knowing when a fall is a dip or turns into a knife catching act.

[coxsmn] 26/10/2018 18:12

Bad shares, good shares and excellent shares are all down in the current market. If your savvy enough to know which is which then its a great buying season.

[mount teide] 26/10/2018 16:11

zho - it was indeed. The original quote is believed to be "Buy when there's blood in the streets, even if the blood is your own."

Warren's version was “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”

It explains well why Fear - mostly illogical - is a major reason many PI's buy high and sell low.

[zho] 26/10/2018 15:58

Baron Rothschild, I think.

[mount teide] 26/10/2018 15:54

Back to where last year I tripled my longterm position taken out in 2013! (Which has been added to at higher prices over the last year).

Taken some profits from GYM this week and added here and at Asia Met.

If the fundamentals are sound - "I like to do my buying when there's blood on the streets" - Warren Buffet

[coxsmn] 26/10/2018 15:54

Sure is, dividend received and re-invested here this afternoon. Thank you caml.

[coxsmn] 25/10/2018 19:49

Tesla is to roll out the series 3 in the Uk next year. Also in Today's Telegraph,"TESLA has turned the ­largest profit in its history and the first recorded by the company in two years.The electric carmaker made more than $300m (£232m) in the third quarter, a result that chief executive Elon Musk called "truly historic" in a letter to investors."

[eeza] 25/10/2018 10:45

They don't sell off every day, Ken. But the days that they do sell off it usually starts around 1400hrs.