Morning Mumble: ManFlu (Death Bed) & Pedra Diamonds & the fall of silver?

Morning, it would appear I've come down with a dreaded lurgy, perhaps its the shock of doing some work! So today it's the odd meeting via cam and recuperation. Its either a lurgy or detoxing is bad for you or worse still I've been infected by a child! As Ian delightfully put it, perhaps I had my food spiked to stop me shorting. I will avoid the graphics...so I have sent my sick note to Ian and Hugo on the basis they can pick up the slack.

Petra Diamonds (PDL) have come up a blinder with a 232 Carat Diamond. With results due on 18th Sept 2014 (brought forward) it could not be better timed for PDL, albeit one will be hoping for more clarification on the capex increases announced and the sale of the 122.52 Carat Cullinan Blue Diamond with the sale process closing on Friday (12th). Admittedly the CAPEX inscrease should improve recoveries. One expects net debt to increase marginally, to around $135M net. with sufficient headroom in agreed borrowings. I'm betting on around £15m for the Blue Diamond as a sales figures, which would assist with cashflow / give sufficient headroom for the changes in capex spending. 

PDL shares have not recovered since the placement of the Awal Bank where the market has not been assisted by the cost overruns and potential 13.2 million shares are only locked in until the end of October. Will there be another sale, I'm told this is unlikely, but unlikely and definitely not are two different things.

Why anyone would want to hold Coal (knife catching) or Hargreaves Services (HSP) is beyond me, but perhaps I'm missing something. Yes profit up which is surprising but the long term trend has not changed, albeit today's results will offer some support to the company longer term. They're significantly better than I expected, so whilst able to muster the energy, I'm closing my short on the HSP (closed 693.4). With the potential return of capital to shareholders, analysts will see this as a positive and turn somewhat bullish in the Preliminary results for the year ended 31 May 2014 its clear the debt is reducing and with the Disposal and Strategy Update offering some hope to shareholders. With all those involved in April 2013 Placing likely to still be holding they're down give or take 10% currently. 

Whilst writing about Fresnillo (FRES)/Hochschild (HOC) this dropped in my inbox from Roger Bade, "Fresnillo (FRES)/Hochschild (HOC) – SELL It is not clear why Hochschild is holding up better than Fresnillo against a falling silver price; it should be the other way round as Hochschild is more heavily leveraged, having higher costs." I have to concur, but more importantly with HOC so heavily leveraged if the key support of $18.98/oz there's some serious problems for HOC. With an all-in sustaining costs of $17.5/oz its not looking good, more so with debt around $260m by my estimates, there's $350m of 7.875% of Senior Notes to be paid for on top of the sustaining costs! Circa. $27.5M in interest alone (adding around a dollar+ an ounce to costs (fag packet). In the current market its hard to justify a price anywhere above 125 pence.

Before the bookkeepers get all upset, I'm aware HOC acquired International Minerals Corporation in 2013 for $271 million and had CAPEX commitments for Inmaculada of $134 million. However this all needs paying for! Those involved in the placing last year (October ish) would be wise to take their 155+ and disappear if Silver loses its vital support. One hopes HOC are hedged to some degree. The market looked to be awaiting clarity on the $18.98/oz silver support with $18.81 curcial. The bottom feeders will be out in due course...wakey wakey HSBC!

I was trying to keep this a Quindell (QPP) free zone, but QPP inform us of the Court judgement won against Gotham City Research. Its interesting there was no defence from Gotham, as such any information they put in the public domain will have been used to assessed the validity of claims and weighed against those of QPP. Due to no-contest I suspect there will be some venting from the longs, shorts and perhaps even those without a position that like to grandstand. Is Non-Contest a win?

Why would Gotham not dispute the claim having had such conviction for their assessment and assertions? Was it down to not being able to afford a defence? Not recognising the authority of the court? If as Gotham assert it was a clear cut case, a lawyer would not have been required to show the facts. The saga will no doubt carry on for sometime...What I do have concern with is those not being accountable and appear to ignore the legal process. Remember, Gotham will be hard pushed to justify an appeal based on "no response and no defence" despite being aware of the matter. Roll on the next twist in the saga, or perhaps further legal actions as the rumour is.

Back to the sick bed!

Atb Fraser

Edit: please see Morning Mumble: Shorts, Savannah Petroleum & all that glitters is not just gold! Commentary on Petra Diamonds (PDL).