Lynas.. Malaysia..

I sold my Lynas holding for a substantial loss this morning...  

I guess it's all my own fault. Looking back, I managed this trade very badly... Damn!

Ok, let me go through my mistake:

1. First rule of investing : Does the company make any money?
2. Second rule : Does the product susceptible for price fluctuation that they can't control? i.e boom and bust scenario?
3. Does the company have any legal proceeding or issues in their operation?
4. Did I  apply stop loss properly?
5. Was the company's sp affected by any hype in any way?
6. Did I enter the trade, aware of those condition, but enter it anyway, because the price MIGHT come back up? (this trade was entered after a steep crash in SP) 

Just Another Day on the ASX..

Feeling the frustration ..lol

The drag on the US government started to bite me yesterday. I was watching and preparing to buy again. This time I had my eyes on MGX.AX (Mount Gibson Iron Ltd).  I sold MGX a short while ago for 0.82 which is turn out to be a good selling price. MGX price went down and down, it reached $0.70 two days ago.  I thought it would be great to grab it again, so I put a buy order at $0.68.

The US shutdown spooks people, and that's including myself. The ASX tanked and I got cold feet, I pulled out my order. MGX did hit $0.68, and I would have got them (it went up strongly afterward on the close).

That's fine, tomorrow I'll try again.. (But this did not happen..)

MGX was very strong from the beginning, up over 7% and the sellers are disappearing.

Many things happen this morning:

1. US Government still in shut down
2. Credit Suisse raised MGX from Underperform to Neutral
3. The Iron ore bears, Credit Suisse, has upgraded its price forecasts
4. Increase in MGX total Proved and Probable Ore Reserves, by 1 M tonne 

And I was left here, annoyed to myself for pulling my order yesterday

McMillan Shakespeare (MMS)

McMillan Shakespeare (MMS) is probably one of the most obvious evidence on how Australian government policy can affect the stock market.
SHARES in MMS have been smashed in the last few days by the Rudd government's surprise crackdown on the FBT treatment of leases on cars used predominantly for private use.

Analysts believe that they've seen the worst of the carnage, but obviously, the exact damage will remain unknown until after the election. It will be valid to consider, however, that the current event may have exposed the company’s business model inherent risks from which it is unlikely to ever fully recover regardless who is going to win the election.

I am asking myself, is it worth to risk it and buy?

Now, I consider myself a chicken when it comes to risks, and while every investment have it’s own risk, there is a significant level of risk in buying MMS. If the government win the next election and the changes in the regulation are implemented, the effect for MMS might be quite devastated. It is possible to imagine 30 or 40% lost of investment in a short space of time (August-September).

On the other hand, what if the opposition win the election? Opposition Leader Tony Abbott has said that he does not support a change to the FBT car rules.  If the changes were not implemented, McMillan Shakespeare would be left intact and growing. The price before the plunge was $18.

Other consideration:
As I mentioned earlier, regardless the election outcome, there will be a scar in MMS business model due to this recent scare. The market might reassess the value of MMS, so it probably will not shoot back up to their previous price in the short run.

I am not good at estimating stocks’ future price, especially with this sort of uncertainty towards it. Let’s see what the analysts and experts said:

• Tim Boreham - Criterion:  Criterion believes that even if the amendments survive the election, this morning's share reaction has been overdone because the affected leasing arrangements are only part of McMillan's business. We'll back the bookies with a speculative buy call. 
• James Lennon, of Ord Minnett, estimated shares would steady between $8 and $9. He said this was based on half the company's novated leases being for private use, which would equate to a 30 to 40 per cent hit to earnings. "There has always been this risk with this stock," he said, adding he expected revenues to recover, but not the share price.
• Claude Walker - Motley Fool ; Even if the changes to salary packaging do not go through, the risk that the rules will change will not go away. That’s because under the current system people are (in effect) allowed to claim tax deductions for cars that are used mostly for personal tasks. If you forecast earnings to be 90 cents per share this year and were happy to pay a P/E of 14, then you would still only pay $12.60 for each share in this company. Personally, I wouldn’t even buy at that price. 
• Bank of America Merrill Lynch is urging investors sell the stock with a price target of $6 a share.
• Citi set a target price of $12.60 on the shares earlier before the halt lifted, with a 'sell' recommendation.
• Goldman Sachs has put a 12-month price target of $9.45 on the shares, with a 'neutral' recommendation to clients, on the view that uncertainty will overhang the sector for up to four months before the proposed changes are abandoned.

In Every Cloud There is a Silver Lining

The 2013 Mining Business Outlook report by Newport Consulting has reported a steep free fall in mining sentiment among the industry leaders. 

Every year, in the last four years, Newport Consulting author a Mining Business Outlook Report, as an independent pulse-check of Australia’s mining industry. This year, a special election-year edition, features more than 60 lengthy interviews with the industry leaders.

The headlines messages from those interviews are:

• Companies are significantly slashing CAPEX spend. The leaders, for the first time in four years, have declared that they are slashing CAPEX spend. Not postponing, nor increasing it.
• Cost Control and Management are high on the agenda. Many mines are now operating at a loss due to cost blow-outs and the fall in commodity price.
• The labor market is contracting. Labour and skill shortage crisis are gone, replaced with fewer vacancy and job redundancies.
• Miners must act now to improve productivity. Operational efficiency must be improved. There is a slight trend among miners to focus on operational excellence and productivity.
• Innovation must be embraced by the resource sector.  Advancements in the mining industry through innovation and new technologies. 

From the distance, it is all doom and gloom for the mining sector.  However every cloud has a silver lining.  The resource boom was so convincing that there was little or no need to innovate.  The challenge is now for the leaders to rethink their approach to operational excellence and to drive value back to the operation.

From Newport Consulting's Mining Business Outlook Report 2013-2014

Sigma Warns on Drop in Earnings

Another company with earnings below last year's earning. No, it's not mining company or mining service company this time, Sigma is a pharmaceutical company.

What's the big deal..? Apparently there are 150 odd profit downgrade in the last 12 weeks.

Ausenco Ltd - Business Update

From Business Spectator today.

Shares in Ausenco Ltd have plummeted more than 25 per cent after a number of contract specific issues and a softer market saw the engineering and construction group flag lower first-half earnings and warn on its full-year performance.
At the 1015 AEST official market open, Ausenco shares were 27.44 per cent lower at $1.56, against a benchmark index drop of 0.21 per cent. Earlier Ausenco shares fell as low as $1.485.

One more engineering and construction group with plummeted share price. Softer market is to blame.
AAX.ASX is now trading at $1.48, a 31.16 % drop.

Runge Pincock Minarco - FY 13 Result Update

 The second half of the 2013 has been a very interesting time for mining support companies. A list of mining service companies reporting a drop in profitability, citing difficult condition and high cost of doing business.

The latest one with this update is RUL.ASX.

Runge Pincock Minarco has a string of new senior Managers starting from August 2012.  Since then, the company had changed the name to RPM (previously Runge Ltd), aggressively cutting employee (figures from 474 to 341 as of now), and also cut expenses and costs.

The results from first half 2013 was a shocker. The share price went down to 39 cents. Since then it went up as high as 67.5 cents.  This is the time when the price of many other mining service companies fell off the cliff, due to negativity in mining investment and commodity price.

With the new CEO, RPM seems to have won the confidence of a few fund managers (I don't know the figures for sure, but IOOF is one of them). The CEO has put in his own money, and so has the employees. You can see this on their update regarding Capital Raising.

All of the Company’s Directors participated to the full extent of their entitlement and a high percentage of the remaining applications were subscribed from the Company’s employee base.

Back to the Result Update...

Confidence is certainly not everything. Fixing up a company is not as easy as fixing up the share price of a non liquidly traded company.

Here is the result:

• Software license sales for the year amounted to $6.8 million (FY12: $10.9 million), or down 37.5%.
• Second half software sales of $2.7 million reflecting difficult trading conditions for desktop software and tight constraints on capital and operating expenditure within the mining sector.
• Year on year net revenue from consulting services is down approximately 30%, or $20.0 million
• The GeoGAS laboratory testing business was similarly affected by a sharp decline in coal exploration activity and associated testing experienced in FY13, with revenue down by approximately 27% or $2.9 million from FY 12
• Recurring revenue from annual Software Maintenance grew by 15% to $11.3 million (FY12: $9.8 million)
• The normal seasonally strong finish to the year for software as experienced last year when $2.7 million of software licenses were sold at year end was not replicated this year due to what we believe was strong fiscal directives across the mining industry.
• Headcount at 30 June 2013 stood at 341, down from 474 at the commencement of the financial year
• As a result of the restructuring activities the run rate of operating expenditure in the 4th quarter of the year reduced to $16.0 million, down by $6.0 million or 27% from operating expenditure in the comparative 4th quarter in 2012 of $22.0 million.
• Reported EBIT loss is $7.3 million, down from $8.7 million profit in 2012.

There is no mention about capital raising in the result update. I am not sure about the reporting standard (accounting wise), but I think the capital raising should be mentioned, to explain the total cash in hand at the end of the period.

The Group had cash reserves of $6.9 million and no bank debt at the end of the financial year.