(B)(N) GLCNF Glencore Xstrata PLC

Deal Book. Switzerland has strengthened its hand as a global commodities broker as the privately-owned Mercuria Energy Group which has offices world-wide and is chartered in Geneva, Switzerland, takes-over the physical commodities business of JP Morgan Chase for $3.5 billion in cash (Reuters, March 19 2014, JPMorgan sells physical commodities unit to Mercuria for $3.5 billion).

Nice move! as the New York banks turn their thoughts to damage control and a future in “wealth management” such as it is in the hapless gold mines on Main Street; however, we turn our thoughts to Glencore Xstrata which is also a Swiss firm and in the business of producing global commodities in the good company of other giants such as BHP Billiton and Rio Tinto. Please see Exhibit 1 below for an update on the fundamentals of global mining.

Exhibit 1: Global Mining – Fundamentals – March 2014

Global Mining – Fundamentals – March 2014

(B)(N) Global Mining – Risk Price Chart – March 2014

It’s astonishing to us how much of heaven and earth these companies have to move for meagre returns although they paid $17 billion in dividends last year which is 60% more than they earned and they provided shareholders with a dividend yield of 3.8% but that doesn’t offset the stock price losses of $83 billion and minus (15%) last year and they’re already down $22 billion and minus (5%) so far this year.

Moreover, the inventory which is currently $50 billion needs to turn over five-times a year to produce earnings of $10 billion and for three of the companies, the more they sell, the less they make; and their dealings with the banks are not inspiring either since the debt is little more than the shareholders equity and generously secured by the inventory and plant & equipment.

Only Anglo American PLC and AngloGold Ashanti Limited (a South African company) currently qualify for the Perpetual Bond™ with the usual stop/loss provisions and our estimate of the downside in the stock prices due to the demonstrated volatility is minus (11%) in the next quarter; should there be a sell-off, we’re positioned to take profits. Please see Exhibit 2 below for more details.

Exhibit 2: (B)(N) Global Mining – Prices & Portfolio – March 2014

(B)(N) Global Mining – Prices & Portfolio – March 2014

Exhibit 3: (B)(N) GLCNF Glencore Xstrata PLC – Risk Price Chart – March 2014

(B)(N) GLCNF Glencore Xstrata PLC ORD

Miners, engineers and day-traders love this business and we guess that everybody thinks that they know something about copper, zinc, iron-ore, alumina, coal and potash to name only a few of the diverse products pulled and processed out of the ground by Xstrata.

We only know about the stock price and it’s currently below the price of risk which is the Risk Price (SF) at $5.50 and means that we should not expect to keep our money safe or obtain a rate of return that exceeds the rate of inflation if we use our money to buy and hold this stock. Others might disagree and have a reason to take a chance.

For more information on “risk management” and additional references to the theory and how to read the charts and tables, please see our Post, The RiskWerk Company Glossary.

And for more on what risk averse investing has done for us this year, please see our recent Posts on The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class action, La Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100. And for more on what’s Working in America, Big Oil, Shopping in America or Banking in America, to name just a few.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™
Alpha-smart with 100% Capital Safety and 100% Liquidity
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.