Tuesday 30 September 2014

Quindell - Roble S.L Speculation

Good morning,

Let me make it quite clear that this is speculative and that I have no proof as of yet that these two parties are connected, but as it's my birthday I thought I would treat you all to some information I was just alerted to:




Josue Robles jr is the president of the United Services Automobile Association a large financial institution in the US.  

This group registered registered a patent on 31 July 2014 for telematics United States Application US20140214750


Read more about the patent here:

http://www.google.com/patents/US20140214750


I'm not for a minute saying that Josue Robles and Roble S.L are definitely connected, but this certainly would be suspect if they were and the timing could not have been done anymore perfectly if I was working for USAA.

Just a thought,

The Masked AIM Trader


UPDATE!



Ladies and gentlemen, another potential piece of news has come my way, which is that an individual named Carlos Robles is an Associate Director advising Carlyle's funds on buyouts in Europe.



Why is this potentially significant?


Carlyle Group are selling off the RAC as we know to a Singapore Wealth Fund, which along with their sale of Addison Lee would give them ample supply of cash to buy Quindell now it's been knocked down


This also helps to add weight behind the speculation that Roble S.L is most likely to be a Spanish company, because S.L stands for "Sociedad Limitada" - the equivalent of being a LLC in the UK, which is how most hedge funds are set up incidentally.


Just an idea,


The Masked AIM Trader


Monday 29 September 2014

Quindell - Increased Credit Limits

Good morning traders and investors,

A short post today, because I don't feel that there's actually a lot to add (the figures speak for themselves):


Quindell's previous credit limit (08/07/2014)= £15,000,000
                                                   (24/06/2014)= £3,850,000


Quindell's current credit limit   = £51,700,000


Quindell's current risk score = 100/100 


Source: Company Check:

Quindell plc Company Check - Credit


Companies with rising credit limits tend not to fail overnight as many other bloggers are perhaps alluding to... Just a general point...

All the best,

The Masked AIM Trader

Monday 22 September 2014

Quindell - Marginal Short Positon Risk.

I'm sorry that I haven't posted anything for a while, I've been working on a quantitative finance program with an old friend that has occupied a lot of my time recently. 

Nevertheless, when I saw this great article on the QPPSAG webpage I couldn't help but get out my laptop and begin to expand upon it under the premiss of looking at short positions:


http://qppsag.wordpress.com/2014/09/20/uks-top-10-largest-law-firms-by-turnover/


Incidentally I am long Quindell and am a strong supporter of the company.

In a couple of respects this post is most closely related to these two posts I wrote a while back, so please give them a glance if you're interested:


http://themaskedstocktrader.blogspot.co.uk/2014/09/comparing-quindell-slater-and-gordon.html


http://themaskedstocktrader.blogspot.co.uk/2014/08/quindell-detailed-analysis-of-h12014.html



This article is posted from the position of a short private investor (so we're going to ignore the strong arguments regarding manipulation here). 

Company Revenue/£m
Quindell 800-900
DLA Piper
1,570
Clifford Chance
1,360
Linklaters
1,260
Allen & Overy
1,230
Freshfields
1,230
Norton Rose
1,150
Hogan Lovells
1,100
Dentons
807.3
Herbert Smith
800


Using the revenue figures provided by the QPP SAG as an example, let us assume that one day Quindell will have a revenue to match the average here (£1,170m - taking Quindell's full 2014 figure to be 850m).


Now, further to this, we have to assume that all companies reflect a certain level of value disparity (hence why people invest because they perceive the current value to be more than the share price indicates).


What we end up extrapolating from that is as a general point is that if I were short Quindell, there would logically be certain levels where my short position would begin to come into heavy fundamental resistance (not chart and price resistance - although the two are often the same), because of continuing rising results. 


These continuing rising results in theory drag up the share's true perceived price (not necessarily its actual price) in relation to the results issued (hence why many people buy companies on PE ratios). 



What this ultimately means is that as Quindell continues to grow my hypothetical short position continues to gather more marginal risk for every marginal unit of unit of return, which in turn means that short positions in rapidly growing companies become exponentially more risky as the share price of an asset falls. 


Now, short positions will do this anyway, because logically the higher a share price is, the further it has to fall and vice versa, but the important factor to realise is that in quickly growing companies this relationship becomes much more exponential in nature and therefore rebounds from certain fundamental and technical strong support lines become much more pronounced.


In short, your marginal, or extra, risk per unit returned grows if you're short as new and improved company data is released dragging up the relative actual value of the share price in relation to these new figures.



What this means, is that for large short position holders and to a lesser extent smaller short position holders, it's much harder to close a short quickly by simply releasing another defamatory rumour, but added to this you're also in danger of being struck down by the positive results and news generation of the company in question.



Now, in my opinion the current movements in the share price are illustrative of at least a partial short closure. This could merely mean that they have an intention to do a large rinse and repeat, but because of this significantly increased marginal risk per unit return I'm doubtful of this.


For anyone who's having issues with any numbers or terms, have a look here where a good few will have been explained:


http://themaskedstocktrader.blogspot.co.uk/2014/07/understanding-ratios-definitions.html


All the best,

The Masked AIM Trader

Sunday 14 September 2014

Bacanora Minerals - A Fact Sheet

Today I come to the internet with a fact sheet style analysis of the official numbers taken mostly from the Bacanora Minerals' website:



Where is it?

- The Bacanora Minerals' company laboratories are situated in Hermosillo, which is a large town in the Northwest  Mexican state of Sonora. Hermosillo is already well acquainted with heavy industry, having a Ford stamping and assembly plant.


What does the company do?

- The company has interests in both Borate and Lithium projects, with the most popular assets being the ten Lithium concessions in the Sonora region of Mexico. This being said, we shouldn't discount tone value of the Borate project, because if (as expected) it enters production in the fourth quarter of 2015, it will provide revenues to help fund the Lithium mines, or provide an asset that could be sold. 

- The ten Lithium concessions can be split  via ownership as follows:

- Two concessions are wholy owned by Bacanora Minerals.
- Eight concessions are joint owned between Rare Earth Minerals and Bacanora Minerals.

- This gives an overall split of 78% to Bacanora Minerals against 22% to Rare Earth Minerals, with Rare Earth Minerals also currently holding 12% of Bacanora Minerals.


Borate Uses:

- Currently Borate is mostly used to provide heat resistance for glass wear, with 43% of global annual production being used for this, while the next biggest use is in detergent manufacture at 23% of the total annual production. 


Lithium Uses:

- The largest market for Lithium is currently in ceramic thermal shock resistance, at 32% of the annual global production. The next biggest market is in rechargeable batteries, which takes 22% of the annual global production, but this percentage is rising quickly with increasing demand from companies like Tesla and the continuing tech-boom.


What is the Lithium production method?

- The laboratories contain the only in-house Lithium carbonate extraction that doesn't use sulphuric acid, making the processing of lithium a more environmentally friendly process. The only other similar company using this method is Western Lithium, although they're not using an in-house facility.


Lithium Number Crunching:

- The current net present value (stated by Bacanora Minerals) of the Sonora Lithium Project is $848,000,000 based on an 8% discount. While this is the most conservative number, numbers much higher than this have been throw around as well./

- Colin Orr-Ewing said in a Proactive Investors interview that the expected mine life is forty years with a production of 40,000 tonnes per year. 

- This gives a project value for the mine over its expected lifetime of $10,400,000,000 in revenue and $7,300,000,000 is profit.

- Based on a average production cost of $1,500 per tonne you have an annual gross profit of $184,000,000

- The CAPEX for the project is estimated to be around $113,000,000. Although, one ought to remember that these figures can vary significantly up and down.


Extra Reading:

The Takeover Potential of Bacanora Minerals:
http://themaskedstocktrader.blogspot.co.uk/2014/09/bacanora-minerals-possible-takeover.html

Understanding the Tesla Rumours:
http://themaskedstocktrader.blogspot.co.uk/2014/08/bacanora-minerals-analysis-of-tesla.html


Sources:

http://www.bacanoraminerals.com

http://www.bacanoraminerals.com/reports/

http://www.proactiveinvestors.co.uk/companies/stocktube/2978/bacanora-minerals-chairman-on-demand-for-borates-and-lithium-2978.html

Poetical Trader on LSE (I thoroughly recommend that you read his/her posts if you're not already privy with them).


All the best,

The Masked AIM Trader

Saturday 13 September 2014

Understanding and Rethinking Financial Beta Trends

I'm going to cheat here and begin by directing people to a MoneyWeek video on Beta, because not only is it fantastic, but it will also help to cover a lot of ground much faster than I could by writing about it:


https://www.youtube.com/watch?v=etlv7qTQUSY


For those who don't know, the man in that video is Tim Bennett - a truly wonderful teacher who's videos should be mandatory for anyone seeking financial knowledge - and for those who can't be bothered to watch the video, beta is basically a numerical illustration of the risk of an asset in relation to the wider market.

I'm now going to write with the assumption that you've watched that video:



One of the problems I have with regression betas in portfolio management is that we take our regression calculation and get a slope. We then take the gradient of this slope and it becomes a beta. The issue is that when we take the gradient of this slope we get a level of standard error. Now, in the US for example, the typical standard level of error for equity betas is between 0.2-0.25. 

This is a bit of a problem, because it means that if Apple has a beta currently of 0.90, it may actually have a beta anywhere between 0.65-1.15 and it gets worse because depending on how you calculate your regression beta, you can end up with a cornucopia of betas and then pick and chose which ever one you want to believe. 


Regardless of this single issue, the much bigger fall back with betas for me is that only about 20-25% of the risk in a company (according to Aswath Damodaran - an expert on betas) is market risk and a beta will only ever capture that portion of risk. This then can get even more fiddly, because you then have to analyse the extent to which company specific risk becomes market risk. The example that Aswath Damodaran uses was the whole Lehman Brothers debacle, which began with internally odd CDS bets (a company specific risk), but ended with a global financial collapse. 

Leading on from this, betas are often calculated for whole investment portfolios, which we will assume have been diversified. This leads us to another issue, which is that diversification (ironically) only works as a hedging method when it's required least. So, in periods of crisis this iconic hedging method blows up because all of the global markets begin to move in tandem with each other. For those who don't believe me, this can be proved:

If you run a regression of stock returns against market returns you get R² and as I've said this averages at about 20-25% in the US, but between September 12th and December 31st of 2008 the average R² for US stocks rose to 70%, meaning that stocks were moving primarily with the market rather than with company specific news and events.

All is not lost though, because with a simple trick we can reduce not only this inherent statistical standard error significantly, but also get a better idea of the real levels of risk to our portfolios when we see rapidly declining markets and R² levels of 70% or more

This certainly isn't an original idea, but if we get multiple regression betas (the more the better) under industry sectors and average them out, we get a much better picture of what levels of risk we're really seeing, in part because that level of standard error is reduced with the more sample regressions we take, but also because of the potential to use of many years of data in a beta calculation. 

What's really good about this, is that sector average betas generally stay the same over long periods of time, which helps us personal portfolio managers to have a much better idea of our "actual beta" in periods of market turmoil. Although, this being said they do change, with the financial industry seeing large changes in average sector betas in the 2008 financial crisis, so it's not fool proof, but it is significantly better. 



To conclude, I would say that it's worthwhile having a rethink regarding how you calculate and think about the betas you see for portfolios and stocks that you're viewing. The sector based beta calculation is certainly not a magic wand to success in risk calculating, but I feel that it does a much better job of giving realistic figures than standard regression betas do.



Enjoy,


The Masked AIM Trader

Friday 12 September 2014

Understanding Gold As An Asset Class

I was asked this very question a couple of weeks ago by a friend of mine (not that I actually have gold currently in any of my portfolios, but that's part and parcel of being a more active trader).


Having a long position in physical gold possibly isn't necessary for those managing smaller portfolios, but for larger portfolios there is a really strong argument behind it. In the current climate, where major indices are reaching up towards the inflation adjusted levels we saw before the last crash, margin borrowing levels are back at pre-2008 crash levels and where political tensions are steadily increasing across the globe, having a strong hedge against global economic unrest is essential to preserving personal wealth.


One of the first problems that many westerners have with understanding gold, is that we have a tendency to believe that gold is a speculative asset driven by COMEX futures and ETFs and we ignore the fact that the biggest stock of gold held worldwide is in jewellery (mostly by Indian households who own around 18,000 metric tonnes of gold in total). The largest demand annually is still in jewellery and the largest annual geographic demand remains in India and China.

This is an important demand point to remember, because we can compare movements in physical premium prices in India and China against the leveraging levels in the COMEX futures and ETF redemptions to determine major changes in the gold price. For example, back in January 2014 when we saw these speculative gold indicators, we could have deduced that the gold price was unlikely to fall below $1200/oz as the gold premiums in China and India were still very high at that point. In effect we saw a transfer of western sellers to eastern buyers.

Excluding the jewellery markets, industrial demand is another important factor to remember as it amounts to a steady 10-12% of the world's gold demand, although when gold has been high in its price range there has been a change in many cases towards copper for the production of these semiconductors.


In terms of supply, the most important point for me is that when we analyse the gold price we need to remember that gold miners produce about 2,600 tonnes a year while gold recyclers recycle about 1,600 tonnes a year. This relatively low supply and low volatility in terms of supply is one of the reasons why gold has a generally low volatility.


A really big point we have to remember is that in terms of the global total assets under management, which is estimated as being anywhere from $120-150 trillion, gold still only amounts to between 0.5-1.0% of that total pot, so we can ignore arguments that gold is a done trade.


Other very strong factors behind gold are its uses as an inflation hedge (over the last 30-40 years it has out-performed US CPI inflation in periods of high inflation), a hedge against currency debasement and its potential use as a monetary quasi currency.



To sum up my like of gold, the number one reason to have gold in a long term portfolio is because it has very good characteristics to hedge against bad beta in high sigma events. The World Gold Council ran a study when they took a wide range of credit crunches and ran portfolios with and without gold and in only one crash did gold not benefit the portfolio. So, it effectively reduces current risk, but also hedges your tail-risk levels - it defends against unforeseen risk.


All the best,

The Masked AIM Trader

Thursday 11 September 2014

What is Market Abuse?

In the UK there are basically two major financial crimes, which are misleading markets (this normally involves lying about your results) and insider dealing (using price sensitive information to make quick money) - being financial crimes these go through criminal law rather than civil law. 

I'm not going to write about those today, but instead look at market abuse which is held in civil law courts, not criminal law courts.



Now, in the UK you're not likely to go to prison for market abuse, but you may get nailed for a large fine if you get caught.


This is all to do with different forms of law and in order to understand why you're not likely to go to prison for market abuse you need to understand that in the UK we have criminal and civil law.



For example, let's say you go to a cafe and you come out of it believing that your coffee wasn't worth the £3 that was shown on the label and instead offer to pay £2 for it. This is a civil offence and you could be sued for money, but you're not going to go to prison. It would however be a criminal offence if you refused to pay anything for it, because that would be stealing.


Not paying the full price for a coffee is not a crime, but you could be sued for the remainder.



This is very important to understand because it's much harder to prove that something is a crime than it is to prove that you should be able to sue someone for a load of money. Hence, in the UK a civil law judgement is based "on a balance of probabilities" and a criminal law case judgement is based on the idea that you must have committed the crime "beyond reasonable doubt". 


Also, if you go after someone in criminal court it's going to be expensive, you'll risk public humiliation to the regulator if they lose and they can take a very long time to get a judgement from.


This is where the 2005 Market Abuse Directive comes into play for the FCA, which is basically governmental permission for them to come after you in a civil law court rather than in a criminal law court. 


This market abuse directive is used in conjunction with something called principal based regulation, whereby they have eleven principals which are all intentionally vague and difficult to understand, so they can nail you easily if they catch you doing something dodgy. For example, one of these principals is "market participants must behave with integrity", which effectively means whatever the FCA wants it to mean when they go after you.


In the case of the somewhat complicated and vague market abuse rules and regulations, we can see that holding these cases in a civil court is a much easier way to get a result quickly and reliably. 



Market abuse itself is essentially covered by these three points:


1. Misuse of information - This is about divulging information that's not currently available to investors or as they put it in London, "wall crossing". If you tell your wife about a possible oil discovery in a firm that's about to be bought-out, you've crossed the mark and could be nailed for market abuse.


2. Misleading investors - This will normally be promising returns on investment vehicles or claiming that your company is the second best in its sector, when there only are two firms in that sector (that's a real example).


3. Manipulating Markets - This could be performing wash trades back and forth to give the impression of a more illiquid or placing orders in the stock exchange and then cancelling them to give impressions that are different, for example.



To conclude, going after people for market abuse is essentially an easier way to nail people for dodgy activity than getting them for a financial crime is. Although, if you do get caught you can live with the assurance that you're not going to go to prison for it, but you should regardless of this be ready to pay up a hefty amount to the regulator.

Wednesday 10 September 2014

Quindell vs The UK Listed Mid Caps

Today we're going to have a look at where Quindell stands against a wide range of upper end small and mid cap companies listed in the UK.


The criteria for my total selection of companies were the following:


- The companies must be listed on the LSE in GBP

- A Market Capitalisation range from £300M and £7.5B
- A PE ratio range between 0.5 and 250667

You can find the tool I used for this stock screen here:


https://www.google.co.uk/finance?ed=uk&ei=1QYQVODEMqzXwAOfkIDwBA#stockscreener




Results:


- In total there were 410 companies.



- Quindell came in 18th place when the companies were ordered by PE ratio (P/E=3.84).



- Quindell was in the top 5% of the sample selection when ordered by PE ratio (4.39% to be exact).



- On removing the investment trusts, Quindell ranks 9th by PE ratio.



- Quindell came in 248th place when ordered by market capitalisation (£757.40M).



Analysis:


Fortunately for me, the analysis here is very simple and can actually be expressed in an easier manner if I give some examples of other well known companies in that total selection:


                                         Market Cap      P/E

- Kingfisher:                     7.497B            10.59
- British Land Company  7.330B             6.56
- Sainsbury                       5.550B            7.85
- William Hill                  3.067B             16.05
- AVEVA Grp                  1.398B             28.25
- JD Wetherspoon            929M               20.05
- Debenhams                   792M               8.43
- Prezzo                           324M               22.50
- Dart Grp                        332M               9.19


Nevertheless, if we are to use some of these companies as examples on which Quindell could base itself, we can see that for Quindell to have even the same PE ratio as Debenhams, it would be on a market capitalisation around two and a half times its current market capitalisation.


For Quindell to be valued on a PE ratio around that of JD Wetherspoon, we would expect Quindell to be valued at around five times its current market capitalisation.



Conclusion: 


I conclude that Quindell is exceptionally undervalued at its current price on a comparative PE ratio basis.



Evaluation:


Now, PE ratios do have a few pitfalls, which I have discussed here (if anyone is interested):



http://themaskedstocktrader.blogspot.co.uk/2014/07/understanding-ratios-definitions.html



Further to this, you could argue that Google Finance is not the most accurate program and thus, these figures generated may also be inaccurate.



I would encourage people to play around with this stock screener and try to make their own conclusions too. Especially now that Quindell has won its law suit against Gotham City Reports, there should be much more perceived stability in the company at it's current levels, which should help to encourage upwards pricing pressure over the coming months.


Monday 8 September 2014

About Me

I'm an ex-grammar school (not that this matters) trader and investor with a passion for finance and in particular the stock market, after having opened my first trading account shortly after my eighteenth birthday.


Currently I trade physical shares with a bias towards the AIM and sub penny stocks, but I have an ambition to move onto trading CFDs and other forms of derivatives when I feel I have amassed more experience and furthered my education regarding these exciting and potentially dangerous products.


I was formerly known as "The Masked AIM Trader" and all of that past content can still be found on this website.



Other Websites:

http://quanttools.blogspot.co.uk/

Comparing Quindell, Slater and Gordon and Shine Lawyers

Recently I was given the great pleasure of reading what I thought was a staggeringly good article comparing the EBITDAs of Quindell, Slater and Gordon and Shine Lawyers. The article in question can be found here and I highly recommend it for those who haven't seen it already:

http://qppsag.wordpress.com/2014/09/01/shine-shines-light-on-the-profitability-of-legal-services/

I felt that I could perhaps generalise this article a bit, but also take it a step further and do a wider comparison of the companies and thankfully I was given permission by the QPP SAG administration to rehash the article.


The first thing to say, is that these are probably the three most similar companies publicly available to compare and although they will not be exactly the same in the way they operate, they are significantly similar that there is value added to be gained from a comparison.  

This table below is an easier way to understand the three companies based upon their current (or nearest) metrics (the numbers show are full year figures or estimates - marked by ranged figures taken directly from the company):

All of the figures have been converted into Great British Pounds for ease of reading.


CompanyMarket Cap/£mRevenue/£mCurrent P/E RatioEPS/£mEBITDA Margin/%
Quindell729.96800-9003.70.577-0.61.735-45
Slater and Gordon774.87241.4120.630.1824.6
Shine Lawyers 258.5766.8817.870.0829.6

I'm going to be a little bit cheeky here and suggest that people have a read of my article on the positives and negatives of certain valuation metrics, because they're not all rosy and we must have a balanced mind when we look at these numbers:


http://themaskedstocktrader.blogspot.co.uk/2014/07/understanding-ratios-definitions.html


The first notable point that I would make is that I am going to leave the EBITDA comparisons to the guys over in the QPP SAG, so have a good read of the article linked to in my introduction there for more guidance.

Secondly, I feel that I ought to state the blatant obvious, which is that a direct comparison of Slater and Gordon and Quindell gives a clear indication that Quindell is significantly undervalued. This is illustrated by the fact that Quindell effectively destroys it in every category displayed, but still has a very similar market capitalisation to Slater and Gordon.

Thirdly, we can use a direct revenue comparison here to estimate that for Quindell to be valued fairly against Slater and Gordon we could expect the company to be trading at about four times its current value and on an earnings per share basis at around three times its current value.

In the case of doing a similar comparison between Quindell and Shine Lawyers, you would get figures in-between those found when comparing Quindell with Slater and Gordon. 



To conclude what could otherwise be a very long article, I'm going to draw to a close earlier than usual, because I think that this table of investing metrics does a better job of explaining how undervalued Quindell is than I can. I would encourage people to keep their knowledge on Quindell red hot and also have a good idea of what the competition is up to, because on a bad day it helps me to remain positive and understand that I'm likely onto a big winner.



All the best,

The Masked AIM Trader


Sources:

http://www.shine.com.au/wp-content/uploads/2014/08/Investor-Presentation-August-2014.pdf

http://www.slatergordon.com.au/files/editor_upload/file/investors/fy14%20results%20presentation%20final.pdf

http://www.quindell.com/images/uploads/irdownloads2014/20140821_IR.pdf

https://www.google.co.uk/finance?chdnp=1&chdd=0&chds=0&chdv=1&chvs=Linear&chdeh=0&chfdeh=0&chdet=1400772600000&chddm=61320&chddi=86400&chls=CandleStick&q=LON%3AQPP&ntsp=1&fct=big&ei=97J9U-iEAbOBwAPzsIHYBQ

https://www.google.co.uk/finance?q=ASX%3ASGH&ei=jWsNVLjtDZKKwwOnoYHYBA

https://www.google.co.uk/finance?q=ASX%3ASHJ&ei=-mwNVIipKa6UwQOh9YCwDg


Wednesday 3 September 2014

Bacanora Minerals - A Possible Takeover Target

A short post today, as I have positions moving very quickly and I need to keep two eyes on them rather than just one.


To understand where I'm coming from with this post, we first have to lay down the global backdrop that we currently have in rare earth mineral demand:


- Increase in the demand for electronic products and electric powered vehicles.


- There currently are no feasible rare earth metal substitutes.


- Price volatility has the potential to be upwardly high (see 2010). I encourage people to read this - http://www.pcreml.com/rare-earth-pricing - to get an idea about how these can move; Bacanora Minerals is not all about lithium, remember.



- The global drive to renewable energy (and thus more batteries).


The export Quotas imposed by the Chinese government (which stopped in April 2011 I believe) are incredibly interesting, because they were perhaps representative of two highly significant potential  dangers that could be posed to China's global dominance in adding the value to rare earth minerals:

1. The political concern surrounding other BRIC nations and their potential to form a more efficient total supply chain (in terms of value added not mineral extraction) than China. 

2. The worries that a cheaper mineral extraction level could be seen elsewhere in the world.


What's particularly exciting about these quotas is that as the demand side factors above increase, there will likely be further influences from the Chinese government in a similar style to this - potentially driving the price of rare earth minerals higher.


Incidentally, there has been a lot of talk in the last month or two regarding how rare earth mineral prices are going to plunge as a result of new mining in Lapland. While this certainly could happen in five or six years, we're not likely to see any downward extraction based price movement until they've actually got something out of the ground.


In understanding that this global backdrop for rare earth minerals combines both a high demand and a volatile supply chain, we can see that value in this market has the potential to rise very quickly. 


This leads us nicely on to have a look at mergers and acquisitions rates in the rare earth sector:


The (arguably small and limited) information I'm going to analyse comes from the website for Pacific Century LTD-http://www.pcreml.com/mining-ma - a company I have never heard of, but regardless of my ineptitude, they have a fantastic website which I applaud them for!


The rather surprising thing about mining in general is that the total value of M&A transactions isn't as high as you would think. 


          No. of Transactions      Value/$bn        Metal Specific Transactions    Metal Specific Value$bn


2003     -                                    -                    164                                           16.1


2011   2605                             110                     -                                                -


2012   1803                             149                  507                                           45.8




The really illustrative points that are made on that website are here:


"Despite overall mining M&A being down in 2012, Metals M&A increased by 20% in 2012 to $45.8 billion (Asia Pacific dominates metals M&A with over 68% of all M&A activity).  The breakdown of transactions in the metals sector in 2012 was steel 51%, aluminium 4% and other metals 45% (as compared to steel 25%, aluminium 23% and other metals 53% in 2011)."


Fortunately for me, I don't have to do a lot of analysis here for the few highly unfortunate people reading this to get the point, which is that there's a clear move towards metal based M&A and specifically "other metals" - including rare earth metals. 


This period of M&A described above interestingly correlates with the bear market we saw from 2011-2012 (a good graph of this can be found here: http://alphanow.thomsonreuters.com/2012/10/chart-of-the-week-rare-earths-not-quite-as-rare/), which suggests that there are a lot of value hunters out there in the market. 


Now that the market has begun to rise again, it's quite likely that in the period before an exponential rise starts to really hit the market that we could see a strong revival of this attitude.


Now, I've already discussed before my views on Tesla and the chances that they might show an interest in Bacanora Minerals (perhaps a very optimistic view point), so I'm going to ignore this for now and direct people towards my previous article on them: 


http://themaskedstocktrader.blogspot.co.uk/2014/08/bacanora-minerals-analysis-of-tesla.html


After having somewhat messed up some calculations regarding BCN (fortunately for me a friend pointed it out) I have decided that I'm not cut out to talk about numbers for mining companies, so instead I am going to cheekily recommend that you go to the LSE forum (http://www.lse.co.uk/SharePrice.asp?shareprice=BCN&share=bacanora_min) and read Poetical's posts, which are exceptional and cover the numbers in a way that I could only dream of doing. Incidentally, that board is actually a very good one and there are many other posters on there which add serious value to the forum.




I'm not sure how I should conclude this post. I have effectively given some wider reasons why Bacanora Minerals has the potential to be a target of M&A, even though I haven't gone into the true depth of the company's deposit sizes and profit we could expect ($184m based on a $1,500 cost of production of lithium). So, I'm going to direct you to Poetical's LSE forum posts so anyone who hasn't had a good look through them can have a look at the in-depth numbers:



http://www.lse.co.uk/member-info.asp?page=6&nick=Poetical




All the best,


The Masked AIM Trader

Monday 1 September 2014

Money Laundering

As of yet, I don't have any personal experience in this matter, so this is not an explanation of how to be a money launderer, but an explanation of what money laundering is and how money launderers may go about it:


What is it?

- Money laundering is defined by the FCA as taking the proceeds of crime and turning it into legitimate funds, or in other words, you take money from an illegal venture of some form and turn it into money you can get away with using. In short, you're separating the crime from the money.


The three stages of money laundering:


1. Placing:

- This is the part of the deal where criminals get hold of their money - i.e. collecting your money from weapons sale or drugs deal.

- Generally, this is where most people are likely to get caught out.


2. Layering:

- This stage is all about blurring the picture to make it hard and the objective of this stage is to get rid of the crime associated money and get new money back.

- Normally, this will involve putting the money through multiple bank accounts and via a complicated  network of contacts in order to make it very difficult for the authorities to trace it.

- It's quite common for money launderers to target builders merchants, because they usually have cash flow issues. For example, Dodgy Dave comes to you and offers to give you a million pounds at a very low interest rate, but with the provision that he may have to call it in early. Six months later he then does, but he writes off part of the debt that the builder has tied up in other projects. 

This still works out profitable for the money launderer, because the margins from crime related business are so huge that it doesn't matter if they lose quarter of the profit in ensuring that it has been layered properly.


3. Integration: 

- The final part of the three step process is all about spending your new crime-disaccociated cash on a new house or a Ferrari, etc.


How big a problem is it?


One of the issues with all forms of crime is that criminals don't have their own bureau of statistics we can look through to work out how big a problem money laundering is, but estimates value the money laundered through the UK at £48 billion per year (about 2% of the UK's GDP).


Why does it matter? 

- Most people probably never think that they're never going to pick being a money launderer as a career and consequently don't think it matters to be knowledgable on the subject, but there are some pretty serious consequences for not being aware of the rules:

1. Fourteen years in prison for being a money launderer - a lot for financial crime. 

2. Five years in prison for not declaring that you know a money launderer. 

3. Five years in prison for tipping off a money launderer.


I suppose to conclude here, the only thing I can really say is don't get caught being a money launderer or being associated with a money launderer.