Wednesday, December 31, 2014

Tungsten vitality goes missing for shareholders

There has probably been more lost in metals mining ventures in the Cairns hinterland over recent times than has ever been returned to shareholders. Never mind, Nick Dalton has found a screaming bargain: $1b tungsten mine proposed near Cairns in “perfect” economic storm
The $178 million construction phase is expected to start late next year, employing up to 250 workers at its peak over 20 months while 150 staff would be needed to run the operation. The 2.5 million tonnes per annum 10-year project is estimated to earn $526 million from revenue of $1.08 billion.
Unfortunately, the market response for Vital Metals on ASX has not been so positive in recent years:

The managing director of Vital Metals as reported by Nick Dalton in the Cairns Post is a Mr Mark Strizek. I can only presume this is the same Mark Strizek reported here by the ABC on Four Corners in 2010:
MARK STRIZEK, MINERALOGY GEOLIGIST (in helicopter, Pilbara): I mean we've got a truly world class, a huge iron ore deposit located right on the coast. We’re close to, it’s the first deepwater port that’s going to be built in the state for about 30 years or so.
SARAH FERGUSON: Mark Strizek is Clive Palmer’s chief geologist.
MARK STRIZEK: I think there's potential here between 50 to 100 years worth of iron ore product.
SARAH FERGUSON: Palmer’s first project here is being developed by Chinese owned Citic Pacific. They’re spending $US 5 billion to develop infrastructure, including a new port.
SARAH FERGUSON (to Mark Strizek): So that’s going to be Port Palmer?
MARK STRIZEK: That’s exactly right, yes, Port Palmer.
SARAH FERGUSON (to Mark Strizek): If we come back in five years there’ll be ships loaded on their way to China?
MARK STRIZEK: Absolutely, I think we’re going to see that at the end of this year or early next year, yes, definately.
SARAH FERGUSON (to Mark Strizek): So long as the boom keeps rolling in China you’ll be producing from here?
MARK STRIZEK: Absolutely. That’s right.
SARAH FERGUSON: The investment for this development was secured before the super profits tax was announced. But what about the project that Palmer said he had canned?
MARK STRIZEK: All approvals are done and we've also submitted the environmental approvals for the other, other three or four projects there.

There is no mention of the previous association with Professor Clive listed in Strizek's CV on the VML website. With more than 300 million shares on issue at less than 3c, a market cap of just $9 million and limited financial resources raising the substantial capital required to fund their 70% share of the project may be a dilution issue for existing shareholders.

Wednesday, December 24, 2014

Dreaming of a white-shoe Christmas

Who said it was a slow news time of year? Amidst a rush of news overwhelmed by human tragedy there was a story perhaps lost in the last week that proves God does indeed have a sense of humour. What else to make of the Queensland Police defending Professor Clive Palmer as an "innocent victim"?

It was this: Clive Palmer’s adviser Andrew Crook held in police raids; Kidnap accused released on bail; Kidnap accused released on bail

To cut to the quick the high profile media adviser to Professor Clive was bailed with passport removed on charges that he was involved in a kidnap conspiracy.

The allegation is that a trio of Crook, Tony Smith, and a dubious Gold Coast PI, who was previously removed from the Qld police service, lured a NAB banker to Indonesia for a job interview. The position was the financial controller for the global empire of Clive Palmer. They then attempted to coerce him to change his evidence in a previous civil action.

Bail conditions exclude going anywhere near the Southport NAB branch. This is the related episode: Tony Smith sues NAB for his lost fortune

Tony Smith had previously sold the tourism accommodation group Breakfree to MFS before the GFS hit. Tony then embarked on building the biggest home on the Gold Coast. This all came unstuck when the shit hit the fan and we found out who was swimming naked.

Tony Smith doesn't seem to have been directly related to the murky circumstances around the subsequent collapse of MFS. He had mostly removed himself as an independent investor and sought to employ the funds to build his white-shoe emblem.

There is a local white-shoe connection here in Cairns in that Crook Media have also been doing the work for Aquis. Crook split early in the year with Andrew Crook looking solely after Professor Clive while the remaining partners took the other clients. Ben Ready now looks after Aquis at the new firm with a new name.

Crook Media also acted previously for the now failed MFS / Octaviar. Michael King who was most implicit in the MFS quagmire subsequently turned up at Aquis: King gets back on the horse; Former MFS boss Aquis project manager; Fungs back Aquis project manager; Crook Media and Aquis. King has also been recently reported to have been bidding on behalf of HK interests for the mortgagee horsey assets of notorious boganaire Nathan Tinkler in the Gold Coast hinterland.

Michael King has now been moved on from any association with Aquis,  apparently on the basis that his involvement was limited to the Reef Casino gambit and not Yorkeys, which is different from what was previously reported. King is facing charges from ASIC on misappropriation of funds including allegations of fabrication of documents related to the collapse of MFS. Can't work out why that could be a probity question? Consultant moves on after Reef Casino bid fails

I'm dreaming of a white-shoe Christmas .......

...... just like the ones we used to know 

I can't wait for 2015.

Profiles: Andrew Crook, Tony Smith and Mick Featherstone

Update: Conspiracy allegations against Clive Palmer’s adviser detailed in court documents

Saturday, December 20, 2014

Bob gives good headworks

Cairns Post, July 26: Approval sought for $200m seven-tower project on Spence St Cairns
The first stage, a high rise on Spence St behind the police station, is set to be completed in 2016.
Aspial bought the site in February this year for $18.9 million and plans to start building on it by the end of this year.

ABC, November 12: Green light for first stage of $200m Spence St tower development
Mayor Bob Manning said he hoped construction of the first high-rise could begin before the end of the year.
"I understand from the Aspial people that there is an urgency to get this work underway, so I'm hoping that we might start to see some activity down on the land even before Christmas, although it may be after but one would hope to see that things are starting to move down there very, very quickly."

Cairns Regional Council, December 17: New incentives round to boost development
To be eligible for the discount, construction must start before 1 July 2015, with a completion date of no later than 30 June 2017.
The projects must have a construction value in excess of $15 million, with at least 80 per cent of the workforce sourced from the local area.
"Council considers that the value of the incentive scheme – that is, the money that Council is forgoing to bring these projects on - will be recovered in additional rates income from these developments inside five years of the completion of projects," Cr Manning said.
The previous round of the incentives program ended on 30 November. Nine projects with a combined value of $63.4 million were completed.

Cairns Post, December 18: Singaporean developer commits to new $120m towers in Cairns; Aspial sees city on rise
Meanwhile Aspial has been waiting for some sign or incentive to get the first $120m stage off the ground.
As soon as the Cairns Regional Council decides on a new round of infrastructure rebates to spark investors to get some projects moving, Aspial acts, with a headworks discount of about $1 million being all it takes for its chief Koh Wee Seng to give the first stage of two towers the green light with the aim of a July 1 start.

Perhaps I have missed some nuance but trying to figure out how a $1 million infrastructure incentive to start a project in the same timeframe that had already been intended can be anything other than a direct subsidy transfer from ratepayers onto the bottom line of a foreign developer for no return. I would like some of the Council numbers and assumptions on that payback period as it would seem to me to be infinite in these circumstances?

As previously posted Aspial may have already been recipient of an unintended subsidy via mis-valuation of the subject land for rates and land taxes, unless corrected: Land valuation weirdnesses revisited.

Friday, December 19, 2014

No change to flight path at Airport

Cairns Airport numbers for November are pretty much in line with recent trends:

The international recovery suggested last month was again hampered by schedule changes in November, with Auckland becoming seasonal to recommence in April, while traffic continues to grow on routes comparable with last year. Seasonal direct flights from China have now recommenced in December. The Chinese lunar new year falls late in 2015 on February 19.

Domestic passenger growth maintains a consistent trend above the national average. Meanwhile Flight Centre issued a profit warning yesterday which it attributed to a flat domestic leisure market:
"While several countries, including the large United Kingdom and United States businesses, are on track to achieve record results during the year to June 30, 2015, trading conditions in Australia remain challenging following the leisure travel spending slowdown late in 2013/14. This slowdown has led to lower than normal leisure sales growth in Australia during the five months to November 30, 2014 and slightly lower margins, as FLT's sales people have reduced commissions to lower overall ticket prices and stimulate demand."
"When we set our full year growth targets in August, we expected the uncertainty surrounding Australia's Federal Budget would have abated as the first half drew to a close and consumer confidence and spending would have started to rebound. Unfortunately, we are yet to see tangible signs of a full recovery and the overall leisure travel market in Australia continues to be flat year-on-year."
Note: Domestic passengers at the Airport will also include international travellers flying on domestic routes.

Thursday, December 18, 2014

Preliminary: employment & population

A quick preliminary post on todays regional unemployment data until the Conus Trend is available. The volatile raw monthly unemployment rate fell to 6.7% while employment did not change much. The bigger story may be that the participation rate also fell to an all time low for the series at 59.4%. The decline apparent here even on these raw numbers remains a concern:

Not unusually the Cairns unemployment rate this month comes with a warning flag on sample variability too high for most practical purposes.

The ABS also released updated national and state population stats today which will require a closer look before posting with particular interest in the interstate migration numbers.

Tuesday, December 16, 2014

Reef Casino treads water

Following the recent collapse in dubious circumstances of the Aquis takeover bid Reef Casino Trust (RCT) has today updated with its estimated distributable profit and distribution for the period ending December 31.
Our current estimate of the distributable profit* for the full year 2014 is approximately $12.1 million. This estimate is after deducting project costs of the lapsed Aquis transaction of about $600K. The premium play win in 2014 is expected to be lower than 2013 which had an ‘above theoretical’ win rate.

Adjusting for the Aquis costs and also the $250k high roller bad debt incurred in the first half would lift the 2014 result close to $13 million. That would still be well below last years result at $13.9 million. Results for the last 5 years adjusted for the extraordinary items in 2014:

Reef Casino reports results on a calendar full year with the second half (2H) typically stronger than the first (1H). Longer term comparisons are complicated by a pokie tax hike in 2009. Closure of the upper floor for renovations in 2012 had some impact that year also. Looking through all that the recovery from the Post-GFC hit doesn't seem to now be going anywhere much.

The extent of how much the above theoretical premium win rate in 2013 influenced results isn't clear. Have to wait for the full results in February but I would call this a slightly disappointing result. The 2013 profit result included EBITDA of $19 million. This was the number adopted by the 'independent expert' in the takeover documentation for the assessment of a fair value range on an EBITDA multiple.

Media reports subsequent to the infamous Junket to Macau included indications from Fung Snr of $20 million EBITDA. Difficult to see how it would not fall short this year on these latest numbers but will wait and see.

Meanwhile trading in RCT has recovered with reasonable liquidity in historical terms following the deep collapse after the Fung Fiasco. RCT have maintained the 2H distribution at last years 17.25c which is above the distributable profit and topped up from reserves.

RCT 2 year Chart

Friday, December 12, 2014

G20 eclipses Zumba

Queensland Economy Watch has employed Google Trends to assess that G20 had only minor impact on Brisbane’s profile worldwide.

I have replicated this for the Cairns G20 finance event with the trend for a search on "Cairns". This is the result for the last 90 days. The output here is daily and relative to the peak for the period which was the first spike in September at the start of the G20 weekend. This was just ahead of the second spike there in October which was when the nurse was admitted to Cairns Hospital with the suspected ebola false alarm.

However when we take a longer term perspective over the past year with a weekly trend the G20 (A) is not so prominent. The relative peak here back in April was Cyclone Ita. The other flagged news events with a label are mostly irrelevant or sport related.

Without any expertise on the nuances of Google Trends another perspective is to add a second search term "G20" shown in red. The relative peak here is the Brisbane leaders summit with the minor bump at label 'C" being the Cairns event.

In recent years it has been Cyclone Yasi in 2011 which has dominated the trend relativities which is similar to the Brisbane result where it was the floods at that time also. So to take a longer term perspective this is the available trend on a monthly basis from 2004.

The impact of G20 here would appear to have had minimal impact on the profile of Cairns based on Google Trends. The G20 month is only modestly above the Zumba world record attempt in February 2012.

Previous post back in 2011 on the trend for search terms 'Cairns Australia' and 'Great Barrier Reef': Google Trends & Insights

Tuesday, December 9, 2014

A comment in which I demonstrate some frustration on the insurance debate

I'm blocked by the Cairns Post on FB so this as my quick response to todays latest insurance beat up and subsequent comments presumably designed as a smoke screen for last weeks adverse finding from the Australian Government Actuary. When rationality fails, derp works:

The ignorance and misunderstanding which continues to be actively promoted by Warren Entsch and Cairns Post continues to astound. The Cairns Post can't even get a basic primary school percentage calculation right in this one!

1) No, despite the current storms down south NQ actually is higher risk based any empirical study that has ever been done. 2) No, requiring a regulated market to impose red tape on where and what insurers should cover is not a workable solution. 3) No, a state insurance office won't make the difference people think it will as Darwin actually is lower risk, and it wont happen anyway.

There are many criticisms that can be made of the insurance situation in FNQ but none of them have ever been addressed by either the Cairns Post, where innumeracy is apparently required for employment, or Warren Entsch who leaves no doubt every time he opens his mouth on anything financial why CEC went down the gurgler with him on the board as chairman!


I'm thinking of joining a quiet monastery somewhere ........

Friday, December 5, 2014

A Dalton too far?

Facebook post from a smiling Member for Cairns and Assistant Tourism Minister:

I can't yet find this posted online so let me attempt an accurate transcription:
"The tropical north has beaten the Gold Coast for the first time as the most popular destination in Queensland for international holiday makers"
"According to international visitor survey figures for the year ended September 30 this year, 665,000 international holiday-makers visited the region, 23,000 more than the Gold Coast and 155,000 more than Brisbane."
The International Visitor Survey breaks visitors down into categories such as holiday, business, education etc. This information is available at the DestinationQ website where it can be interactively graphed and downloaded. There were indeed 665,000 visitors to TNQ in the holiday category. This was 23,000 more than Gold Coast for the year to September 30 2014.
I have downloaded and graphed the Queensland regional data for the holiday category to enable comparison and analytical interpretation:
Yes, here we can clearly see that TNQ has surpassed the Gold Coast in this holiday visitor category for the first time ever! Oh, wait?

Accurate commentary on this recent International Visitor Survey can be found at Conus: International Tourism numbers continue to climb but TNQ still underperforming

Tuesday, December 2, 2014

Doing the sums for Crisafulli

The numbers in the video currently promoting cyclone preparedness come from Risk Frontiers a research unit at Macquarie University. I never did get around to another insurance post following the recent distressing experience of listening to Warren Entsch for an hour on the topic. Relevant to this disaster scenario, Wazza expressed that Cyclone Yasi shouldn't impact on Cairns premiums because there wasn't much damage in Cairns. Homer Simpson for Leichhardt  o_O

Among other risk delusions are that the insurers are ripping us off by exaggerating cyclone risk relative to event such as storms in SEQ and bushfires. This is a common misconception frequently also heard on talkback radio. It also popped up this week from Local Government Minister Crisafulli down in Townsville: NQ insurance rip off must stop
“I’m not asking insurers to charge people in other parts of the state any more but I am asking them to stop unfairly targeting the north,” he said. “This storm proves there is no greater risk in North Queensland, which has been the reason used by some insurers to jack up premiums.
“Whether it is bushfires in Vic, hail storms in Sydney or Brisbane or floods in central Queensland, we all live with a level of risk. “North Queenslanders are happy to pay our fair share for coverage but we just don’t want to be the whipping boys because of an unfair ­perception that there is a greater risk in our part of the country.”
Crisafulli is just plain wrong and is also directly contradicting the findings of the Australian Government Actuary. It also reminded me of a blog post discovered a while ago written by John Devaney at local FNQ insurance broker Joe Vella. This was I think written a couple of year ago and John has done a very simple back-of-the-drink-coaster analysis. It doesn't pretend to be anything sophisticated with some loose assumptions but is certainly superior to the public-bar-windbag anecdotal derp of Entsch and Crisafulli. This is an extract:

Written by John Devaney.

There are some parts of Warren Entsch's Opinion piece [Time to find answers on North's insurance crisis Cairns Post Oct 20] that correctly challenges the Insurance Council of Australia [ICA] to be more frank with consumers. Clearly there is an issue with the massive hikes in certain classes of property insurance.

That said I have a fundamental problem with the Entsch article. He focusses on what he sees as the inequitable price of insurance compared to other regions of Australia. It's good politics that score emotive points and much of that is understandable but it's inaccurate none the less. And it distracts from how we must face and attempt solve the problem.
Yes it's true that house and other property insurance in Brisbane, Sydney, Melbourne or even Darwin might be cheaper than Far North Queensland but Darwin has had one Cyclone in fifty years. Our region has had several major Cyclones in thirty years, two of those in the last six years.
The brutal reality is the mathematical imperatives that are in play. The following is pretty crude but it illustrates my point. The cost of claims is sourced from the ICA website.
The population figures are courtesy of Mr Google.
Table 1: Cyclone Yasi Cost per North QLD "Dwelling"
  • Total Cyclone Yasi Insurance Claims Cost $1,412,239,000
  • Population of Cairns 150,920 + Townsville 190,000 + Mackay 121,000 = 461,920
  • Divide Population by say, 4 persons representing 1 Family Unit = 115,480 "Dwellings"
  • Spread of Claims Cost across each Dwelling or Family Unit: $12,229
Now let's look at the Brisbane Floods
Table 2: SE QLD Flood Event Cost per South East QLD "Dwelling"
  • Total SE QLD Flood Event Claims Cost $2,387,624,000
  • Population Brisbane in a 200 KM radius from the Brisbane Post Office: 3,005,000
  • Divide Population by say, 4 persons representing 1 Family Unit = 751,250 "Dwellings"
  • Spread of claims Cost across each Dwelling or Family Unit: $3,178
This is the harsh, stark reality. The Flood event was almost double the cost of Yasi yet spread across the respective population bases Yasi cost Far North "dwellings" 4 times that of the Flood Event's cost to an equivalent "dwelling." Sure, the above figures include commercial losses in North QLD but they include commercial losses in South East QLD as well. The numbers would still crunch the same way.

Warren Entsch suggested we compare ourselves with Darwin. Fair enough.
Table 3: Cyclone Tracy amortised over 38 years (there have been no other major weather events)
  • Cyclone Tracy Claims Cost $ 200,000,000
  • Population of Darwin 120,000 divided by our 4 family average = 30,000 "Dwellings"
  • Spread of Claims across each Dwelling or Family Unit = $6,666
  • Amortised over 38 years = $175
Compare that to our region
Table 4: FNQ Cyclones & Weather Events amortised over 38 years
  • Winifred ($40 M) + Aivu ($26M) + Rona ($4M) + Steve ($11M) + Tessi ($15M) Larry $540 + NQ Deluge 2009
  • ($19M) + Yasi ($1,412,239,000) = $2,067,239,000
  • Spread of Claims cost across each dwelling or Family Unit = $17,901
  • Amortised over 38 years = $471
We have two fundamental problems we have to solve. We don't have the spread of numbers to sustain ever increasing losses from more frequent weather events.

So what happens now?

In my almost forty years in the industry there has only been three occasions that I can recall where the insurance market corrected itself, sometimes known as a 'hard market.' They were the 1990's recession, the 2001 post HIH crash and September 11 tragedy and in 2012 the floods, and Cyclone Yasi. In between those 3 corrections the market has been relatively defined as 'soft' in short, too under-priced.

Some insurance industry commentators suggest that the market will start to soften in the next two years. This time, I'm not so sure. There is far more accurate technology than ever before. In my view we have entered the age of computerised actuarial discipline – certainly when it comes to commoditised insurance products like house and motor vehicle policies. Insurers used to think – "let's dominate the market by cutting the price." The other classic rationale was "Jeez those chaps in North QLD are caning our profits. Thank goodness the Brisbane, Sydney, Melbourne markets can prop up the figures." That thinking is redundant. Now the market mantra is "Each region must be self-sustaining."

I think the Brisbane storm is currently up to about $200 million but it will go nowhere close to a big cyclone hitting a regional city relative to the written insurance premiums in each area based on historical experience and wont shift the analysis much. I have plenty of issues with the recent insurance situation in Tropical Queensland but sticking our heads in the sand and deluding ourselves on the relative risks avoids the core issues and understanding. It is simply seeking a subsidy from the rest of Australia.

Crisafulli is in fact asking other people to pay more even when he says he isn't. It can't be otherwise on any analysis of the numbers. Perhaps Crisafulli should instead take on the issue of state insurance stamp duty in cabinet which as posted here previously is a fiscal transfer from his constituents to Brisbane.

Update: Allianz has been selected as preferred buyer of TIO: