PPHM announced that Eastern Capital has purchased 18.5 million shares of PPHM valued at US$1.08 per share. This makes Eastern Capital one of the largest institution investors on board.
This is an important development as it allows PPHM to continue to pursue its many trials involving their lead drug Bavituximab with various collaborators' drugs, especially with AstraZeneca's durvalumab which has now been expanded into a global Phase II study, capitalising on Astrazeneca's global network.
Still, the main driver of PPHM's growth will be the eventual approval of Bavituximab by the FDA.
Saturday, October 31, 2015
US OIL RIGS COUNT
US oil rigs count dropped further on the week ending 30 October as drillers removed 16 wells from the field, bringing the total of rigs count still in service to 578. This is the ninth consecutive week that the rigs count has dropped.
This provided additional support for oil price which closed higher at US$46.59 per barrel.
US refineries will be coming back on line soon after a period of maintenance and thus would continue their draw down from the stockpiles, which are already at high levels. This could provide additional support to the price of oil in the coming weeks.
Previously, I have mentioned that October could be a day of reckoning for many oil producers as financial institutions review the credit lines offered to the many stricken oil producers. Looks like they have a second lease of life as many had their credit lines maintained and only a small handful had theirs lowered.
This will put some financial institutions at risk further as many of the oil producers are at risk of default. By extending a temporary lifeline until the next review in spring next year is akin to kicking the can down the road.
Perhaps in part, the financial institutions' decision had been driven by the news that US oil production is finally showing signs of slowing down. In part it has dropped by 500,000 bopd since April.
Continuous drop in production could help oil price to stabilise and the much needed impetus to move northwards one again.
This provided additional support for oil price which closed higher at US$46.59 per barrel.
US refineries will be coming back on line soon after a period of maintenance and thus would continue their draw down from the stockpiles, which are already at high levels. This could provide additional support to the price of oil in the coming weeks.
Previously, I have mentioned that October could be a day of reckoning for many oil producers as financial institutions review the credit lines offered to the many stricken oil producers. Looks like they have a second lease of life as many had their credit lines maintained and only a small handful had theirs lowered.
This will put some financial institutions at risk further as many of the oil producers are at risk of default. By extending a temporary lifeline until the next review in spring next year is akin to kicking the can down the road.
Perhaps in part, the financial institutions' decision had been driven by the news that US oil production is finally showing signs of slowing down. In part it has dropped by 500,000 bopd since April.
Continuous drop in production could help oil price to stabilise and the much needed impetus to move northwards one again.
Thursday, October 29, 2015
US GDP TAKEAWAYS
US' Q3 GDP grew 1.5% vs a forecast of 1.6%. This is a sharp contrast from the 3.9% achieved in Q2.
Consumer spending again is the prime driver, delivering 3.2% in growth. Inventories contracted, shaving 1.44% off the GDP.
The robust consumer spending of curse led many to believe that the Federal Reserve will likely raise the interest rates in December.
Herein lies the question: If consumer spending is going to be robust, why the need to cut inventories? Of course, on the other side of the coin, the cut in inventories was viewed as cyclical and should correct itself in the ensuing months.
The anticipation of a rate hike immediately push majority of commodity prices down, due to the strengthening of the US$.
At this juncture, the GDP remains preliminary as there will be revisions later on. My bet is that it will be revised down from 1.5%.
This is because of a string of data released showed some disturbing trends in September:
1) New home sales is down
2) Pending home sales is down
3) US business spending gauge fell
Still the November 6 Jobs Report will give a better indication in the direction of the Federal Reserve.
Should there be an interest rate hike, we could see general weakness and potential recession in emerging markets.
The above is just my opinion. You are encouraged to do your own research.
Consumer spending again is the prime driver, delivering 3.2% in growth. Inventories contracted, shaving 1.44% off the GDP.
The robust consumer spending of curse led many to believe that the Federal Reserve will likely raise the interest rates in December.
Herein lies the question: If consumer spending is going to be robust, why the need to cut inventories? Of course, on the other side of the coin, the cut in inventories was viewed as cyclical and should correct itself in the ensuing months.
The anticipation of a rate hike immediately push majority of commodity prices down, due to the strengthening of the US$.
At this juncture, the GDP remains preliminary as there will be revisions later on. My bet is that it will be revised down from 1.5%.
This is because of a string of data released showed some disturbing trends in September:
1) New home sales is down
2) Pending home sales is down
3) US business spending gauge fell
Still the November 6 Jobs Report will give a better indication in the direction of the Federal Reserve.
Should there be an interest rate hike, we could see general weakness and potential recession in emerging markets.
The above is just my opinion. You are encouraged to do your own research.
Wednesday, October 28, 2015
FOMC: KEY FACTORS WHICH ARE ABOUT TO DO A U-TURN
In the minutes, the FOMC quoted:
"September suggests that economic activity has been expanding at a moderate pace. Household spending and business fixed investment have been increasing at solid rates and housing sector has improved further, however, net exports have been soft "
Household Spending
September Consumer Confidence Index 102.6
October Consumer Confidence Index 97.6 (drop of 5.0 month on month)
September US Retail Sales rose by a mere 0.1% with August revised down as being unchanged instead of a rise of 0.2%.
Business Fixed Investment
On the day of the FOMC meets, Durable Goods contracted 1.2% in September, with August's contraction revised lower to minus 3.0%.
Housing Sector
A day before the FOMC meets, new home sales fell to an annual rate of 468,000 in September, 67,000 below the low-end of estimate and lowest rate since November 2014.
August new home sales was revised down by 33,000.
MBA Mortgage Applications
On the day of the release of the minutes, October purchase applications (for the week ending October 23), slipped 3.0%. while refinancing applications were down 4.0%.
So in a nutshell, based on recent data things are indeed much worse than what the FOMC stated.
How could Household Spending be solid when Retail Sales rose 0.1%? Or when Consumer Confidence declined to 97.6 from 102.6 a month earlier.
How could Business Fixed Investment be solid when Durable Goods fell 1.2% in September?
How could Housing Sector improved further when New Home Sales fell to the lowest in almost a year? How could it when Mortgage applications had also shown declines lately?
These are the same questions that will hound the Federal Reserve. Today's GDP data will give a better indication. Consensus estimate is 1.7% growth, but the widely followed and accurate data at the Atlanta Federal Reserve, shows 0.9%.
One thing for sure, it's going to be a bumpy ride all the way to December. Will the Federal Reserve act to salvage its reputation despite the negative data, or will they admit that the state of the economy does not warrant an interest rate hike as yet.
The above are just my opinion, of course.
"September suggests that economic activity has been expanding at a moderate pace. Household spending and business fixed investment have been increasing at solid rates and housing sector has improved further, however, net exports have been soft "
Household Spending
September Consumer Confidence Index 102.6
October Consumer Confidence Index 97.6 (drop of 5.0 month on month)
September US Retail Sales rose by a mere 0.1% with August revised down as being unchanged instead of a rise of 0.2%.
Business Fixed Investment
On the day of the FOMC meets, Durable Goods contracted 1.2% in September, with August's contraction revised lower to minus 3.0%.
Housing Sector
A day before the FOMC meets, new home sales fell to an annual rate of 468,000 in September, 67,000 below the low-end of estimate and lowest rate since November 2014.
August new home sales was revised down by 33,000.
MBA Mortgage Applications
On the day of the release of the minutes, October purchase applications (for the week ending October 23), slipped 3.0%. while refinancing applications were down 4.0%.
So in a nutshell, based on recent data things are indeed much worse than what the FOMC stated.
How could Household Spending be solid when Retail Sales rose 0.1%? Or when Consumer Confidence declined to 97.6 from 102.6 a month earlier.
How could Business Fixed Investment be solid when Durable Goods fell 1.2% in September?
How could Housing Sector improved further when New Home Sales fell to the lowest in almost a year? How could it when Mortgage applications had also shown declines lately?
These are the same questions that will hound the Federal Reserve. Today's GDP data will give a better indication. Consensus estimate is 1.7% growth, but the widely followed and accurate data at the Atlanta Federal Reserve, shows 0.9%.
One thing for sure, it's going to be a bumpy ride all the way to December. Will the Federal Reserve act to salvage its reputation despite the negative data, or will they admit that the state of the economy does not warrant an interest rate hike as yet.
The above are just my opinion, of course.
NO INTEREST RATE HIKE IN OCTOBER
Well the Federal Reserve had put interest rate on hold, but wording quite strongly that there could be a hike a hike further down the road.
The Federal Reserve has unwittingly painted themselves into a corner. By announcing that there will be a rate hike this year, to not do so, would put the credibility of the Federal Reserve at risk. But global economy indicators are really weak right now, any interest rake hike will push the world into recession.
We have to consider the implications of a rate hike against a backdrop of interest rates and reserve ratios cut by China, and QE in EU and Japan, which have fallen short of expectations. Against a backdrop of falling commodity prices and emerging economies currencies, and falling global trade (with reference to the Baltic Index which have fallen drastically from recent highs) and IMF's forecast of global growth to 3.1% from 3.3%.
Indeed the Federal Reserve is in a tight spot. Likelihood, to salvage whatever reputation they had left, the Federal Reserve will raise interest rate but it will be below market expectations, perhaps? This will be accompanied by a dovish outlook and suggestions that interest rates hike will pause for now.
To do otherwise, the Federal Reserve would push the world into a recession.
I would still prefer gold mining companies as a long term investment, because we could be in a period of having too much liquidity in the market but with limited growth, and of course a potential asset bubble burst in Asia, spiraling into a debt crisis.
For short term trades, I would choose gold, looking for opportunities to short as well as long.
The above is just my opinion. You are encouraged to do your own research.
The Federal Reserve has unwittingly painted themselves into a corner. By announcing that there will be a rate hike this year, to not do so, would put the credibility of the Federal Reserve at risk. But global economy indicators are really weak right now, any interest rake hike will push the world into recession.
We have to consider the implications of a rate hike against a backdrop of interest rates and reserve ratios cut by China, and QE in EU and Japan, which have fallen short of expectations. Against a backdrop of falling commodity prices and emerging economies currencies, and falling global trade (with reference to the Baltic Index which have fallen drastically from recent highs) and IMF's forecast of global growth to 3.1% from 3.3%.
Indeed the Federal Reserve is in a tight spot. Likelihood, to salvage whatever reputation they had left, the Federal Reserve will raise interest rate but it will be below market expectations, perhaps? This will be accompanied by a dovish outlook and suggestions that interest rates hike will pause for now.
To do otherwise, the Federal Reserve would push the world into a recession.
I would still prefer gold mining companies as a long term investment, because we could be in a period of having too much liquidity in the market but with limited growth, and of course a potential asset bubble burst in Asia, spiraling into a debt crisis.
For short term trades, I would choose gold, looking for opportunities to short as well as long.
The above is just my opinion. You are encouraged to do your own research.
Sunday, October 25, 2015
AN ECONOMIST VIEW ON WHY THE FEDERAL RESERVE WILL NOT RAISE INTEREST RATES
According to Dr Michael Ivanovitch, the US has several alarming indicators which will deter the Federal Reserve from raising any interest rates. Below are excerpts from an article published by CNBC and my own reflection of what they mean.
1) Evidence that a mild contraction of monetary creation (tightening of money supply) earlier this year was reversed in June. Between end of June and the middle of October, the Federal Reserve's monetary base increased by 3.5%.
My opinion: This is a sign that the Federal Reserve is NOT leaning towards a tightening policy
2) Substantial slack still remains in the US labour market. The number of under- employed and unemployed is still 15.8 million. This is an exceptionally high number.
3) No inflation threats, mainly due to very low energy prices. The CPI in September 2015 was flat. With energy prices forecast to remain low well into 2016, inflation (in the US) is not going to happen anytime soon.
On top of that, despite economic growth, wage growth has been minimal. Reflecting on the excess supply of labour, unit labour costs on the first half of the year rose 1.4% from a year earlier, a substantial slowdown from the 2.2% recorded in the first half of 2014, and the average 2.1% for the whole of last year.
My opinion: The Federal Reserve has time and again mentioned that their most important task is to increase jobs and increase wage growth. This is not happening. On top of that, we have a low inflation environment.What is the reason to raise rates when there is no inflationary pressures in the economy? It is akin to shoot into one's foot, because if the Federal Reserve does raise rates, the economy will tank and hiring will fall, therefore defeating their original objectives.
4) Latest surveys show weakening in the service and manufacturing sectors. The industrial production increased a small 0.4% year on year after monthly declines in July and August, and the capacity utilisation rate of 77.5 % is far below the long term average of 80.1%.
5) Slowing lending to consumers by banks. Despite the sharp increase in excess reserves in the banking sector, bank lending to consumers slowed to an annual growth rate of 5%. Was it due to poor demand by consumers? Apparently not. Non-bank lending to consumers actually rose 8% year on year.
My opinion: Now why are banks not lending? In any economic environment, once lending by banks has slowed, it means that the economic picture is less than rosy.
4) An interest rate increase would induce capital flows into the US, causing the US$ to rise and weaken US trade. The US$ 12% trade-weighted increase YTD has taken its toll on US foreign trade. In the first 8 months of this year the trade deficit came in at US$500.1B, a 3% increase from the previous year. This could cause a serious drag on the US economy.
The US trade deficit with Europe in the first 8 months of the year rose 8% as Europe goods become cheaper due to the drop in the Euro's value and the rising US$ made US made goods more expensive.
US trade deficit with Asia is even worse, reflecting a 15% increase.
My opinion: So at this juncture it becomes highly unlikely that the Federal Reserve would raise interest rates, not when there are so many negative factors about the US economy.
My opinion: What are your investment options? US and global equities have more legs to move higher and I will continue to invest in companies which have high growth potential, and companies which pay high dividends, but I will also build a defensive portfolio consisting of REITs (high dividends lower risks) and gold mining companies (No matter how good are equities, one day the music will stop playing and the market will crash, gold will be a defensive option, and gold mining companies are the benefactors)
Link: http://www.cnbc.com/2015/10/25/fed-money-market-operations-balance-sheet-show-no-plan-for-rate-hike.html
1) Evidence that a mild contraction of monetary creation (tightening of money supply) earlier this year was reversed in June. Between end of June and the middle of October, the Federal Reserve's monetary base increased by 3.5%.
My opinion: This is a sign that the Federal Reserve is NOT leaning towards a tightening policy
2) Substantial slack still remains in the US labour market. The number of under- employed and unemployed is still 15.8 million. This is an exceptionally high number.
3) No inflation threats, mainly due to very low energy prices. The CPI in September 2015 was flat. With energy prices forecast to remain low well into 2016, inflation (in the US) is not going to happen anytime soon.
On top of that, despite economic growth, wage growth has been minimal. Reflecting on the excess supply of labour, unit labour costs on the first half of the year rose 1.4% from a year earlier, a substantial slowdown from the 2.2% recorded in the first half of 2014, and the average 2.1% for the whole of last year.
My opinion: The Federal Reserve has time and again mentioned that their most important task is to increase jobs and increase wage growth. This is not happening. On top of that, we have a low inflation environment.What is the reason to raise rates when there is no inflationary pressures in the economy? It is akin to shoot into one's foot, because if the Federal Reserve does raise rates, the economy will tank and hiring will fall, therefore defeating their original objectives.
4) Latest surveys show weakening in the service and manufacturing sectors. The industrial production increased a small 0.4% year on year after monthly declines in July and August, and the capacity utilisation rate of 77.5 % is far below the long term average of 80.1%.
5) Slowing lending to consumers by banks. Despite the sharp increase in excess reserves in the banking sector, bank lending to consumers slowed to an annual growth rate of 5%. Was it due to poor demand by consumers? Apparently not. Non-bank lending to consumers actually rose 8% year on year.
My opinion: Now why are banks not lending? In any economic environment, once lending by banks has slowed, it means that the economic picture is less than rosy.
4) An interest rate increase would induce capital flows into the US, causing the US$ to rise and weaken US trade. The US$ 12% trade-weighted increase YTD has taken its toll on US foreign trade. In the first 8 months of this year the trade deficit came in at US$500.1B, a 3% increase from the previous year. This could cause a serious drag on the US economy.
The US trade deficit with Europe in the first 8 months of the year rose 8% as Europe goods become cheaper due to the drop in the Euro's value and the rising US$ made US made goods more expensive.
US trade deficit with Asia is even worse, reflecting a 15% increase.
My opinion: So at this juncture it becomes highly unlikely that the Federal Reserve would raise interest rates, not when there are so many negative factors about the US economy.
My opinion: What are your investment options? US and global equities have more legs to move higher and I will continue to invest in companies which have high growth potential, and companies which pay high dividends, but I will also build a defensive portfolio consisting of REITs (high dividends lower risks) and gold mining companies (No matter how good are equities, one day the music will stop playing and the market will crash, gold will be a defensive option, and gold mining companies are the benefactors)
Link: http://www.cnbc.com/2015/10/25/fed-money-market-operations-balance-sheet-show-no-plan-for-rate-hike.html
Friday, October 23, 2015
DEFLATION OR INFLATION, GOLD WILL SHINE. HERE'S WHY
Here's 2 articles that reinforce my belief that the Federal reserve will not raise interest rates at all.
In the intermittent period, as long as rates remain low, oil price will pick up.
The danger is of curse, there will be asst bubbles and some of these will crash, but the impact will be that the price of gold will go up. Whether deflation or inflation, gold will shine.
First article: http://citizen.co.za/813458/us-growth-is-weak-fed-will-ease-rates-jim-rickards/
Second article: http://www.commoditytrademantra.com/gold-trading-news/how-inflation-could-be-caused-in-15-minutes-simply-raise-gold-prices/
In the intermittent period, as long as rates remain low, oil price will pick up.
The danger is of curse, there will be asst bubbles and some of these will crash, but the impact will be that the price of gold will go up. Whether deflation or inflation, gold will shine.
First article: http://citizen.co.za/813458/us-growth-is-weak-fed-will-ease-rates-jim-rickards/
Second article: http://www.commoditytrademantra.com/gold-trading-news/how-inflation-could-be-caused-in-15-minutes-simply-raise-gold-prices/
US RIGS COUNT
US rigs count dropped by 1 for the week ending 23 October, 2015 to 594, according to Reuters.
No big change, but the end of the report was what makes this important.
Oil production in the US has remained at about 9.1M bopd since September, below the 9.6M bopd reported in April.
So between the two periods, oil production in the US has dropped 500,000 bopd. it will be interesting to see how much more will drop as we progress into 2016.
http://in.reuters.com/article/2015/10/23/usa-oil-rigs-baker-hughes-idINL1N12N1NW20151023
No big change, but the end of the report was what makes this important.
Oil production in the US has remained at about 9.1M bopd since September, below the 9.6M bopd reported in April.
So between the two periods, oil production in the US has dropped 500,000 bopd. it will be interesting to see how much more will drop as we progress into 2016.
http://in.reuters.com/article/2015/10/23/usa-oil-rigs-baker-hughes-idINL1N12N1NW20151023
OIL COMPANIES WRITE DOWN US$6.5B OF ASSETS
The above was reported in Bloomberg today. This is hardly surprising given the fact that the assets are have fallen by more than 50% in value since last year.
Southwester reported a $2.8B impairment in Q3 while Freeport-McMoran posted a charge of US$3.7B.
Will it get worse? Yes, as many US oil and gas companies have yet to report their Q3 earnings.
Southwester reported a $2.8B impairment in Q3 while Freeport-McMoran posted a charge of US$3.7B.
Will it get worse? Yes, as many US oil and gas companies have yet to report their Q3 earnings.
CHINA CUTS INTEREST RATES FOR THE SIXTH TIME SINCE NOVEMBER 2014
China today cuts its interest rate bu 25 basis points to 4.35 percent. This is the sixth time they have cut their interest rates.
In response gold went up more than 1%.
We have Japan and EU which may not meet their inflation target and as such we could see further easing by EU, which Draghi hinted last night, and possibly Japan.
The latest move my China looks likely to push any decision of interest rates hike by the Federal Reserve into 2016.
As I have always said, with so much liquidity but little output to show, we could be pushing ourselves towards a hyperinflation in the the future. Let's hope it will not happen.
In this case, the best hedge will still be gold. My preference however will be gold mining counters. Gold doesn't earn any interests, but at least gold mining companies will pay dividends.
In response gold went up more than 1%.
We have Japan and EU which may not meet their inflation target and as such we could see further easing by EU, which Draghi hinted last night, and possibly Japan.
The latest move my China looks likely to push any decision of interest rates hike by the Federal Reserve into 2016.
As I have always said, with so much liquidity but little output to show, we could be pushing ourselves towards a hyperinflation in the the future. Let's hope it will not happen.
In this case, the best hedge will still be gold. My preference however will be gold mining counters. Gold doesn't earn any interests, but at least gold mining companies will pay dividends.
Thursday, October 22, 2015
US$130 PER BARREL OF OIL IN 2017?
I thought the headline would catch everyone;s attention.
http://www.bloomberg.com/news/videos/2015-10-22/why-crude-oil-prices-may-hit-130-a-barrel-in-2017
http://www.bloomberg.com/news/videos/2015-10-22/why-crude-oil-prices-may-hit-130-a-barrel-in-2017
DISNEY IS A TRADING BUY
With the pre-sale of tickets of Star Wars - The Force Awakens breaking all time records, so much so that websites crashed, the new Star Wars movie will definitely set a record of sorts for itself.
Traffic to online tickets sites have increase as many as 10 times over for AMC theaters and 7 times over at Fandango.
Link: http://www.theverge.com/2015/10/20/9576881/star-wars-the-force-awakens-ticket-sale-records
Despite the shadow of a cloud hanging over Disney's ESPN unit, the expectations of Star Wars ticket sales and merchandise could yield Disney some very huge returns.
I have a trading BUY recommendation for Disney. It still have some legs to retest its US$120 level.
This is just my opinion and it is important that you do your own research.
My disclosure: I do not own shares of Disney.
Traffic to online tickets sites have increase as many as 10 times over for AMC theaters and 7 times over at Fandango.
Link: http://www.theverge.com/2015/10/20/9576881/star-wars-the-force-awakens-ticket-sale-records
Despite the shadow of a cloud hanging over Disney's ESPN unit, the expectations of Star Wars ticket sales and merchandise could yield Disney some very huge returns.
I have a trading BUY recommendation for Disney. It still have some legs to retest its US$120 level.
This is just my opinion and it is important that you do your own research.
My disclosure: I do not own shares of Disney.
ECB DECIDED TO HOLD INTEREST RATE
BOE and ECB have decided to hold their respective interest rates which are already at record lows, and their concerns with the growth trajectory of the global economy.
IMF had earlier revised the growth rate from 3.3% to 3.1%.
China and pretty much of the major Asian economies have been steadily reduced their respective interest rates.
So how about the Federal Reserve? I think any rate hike will likely to be deferred until 2016, provided the global economy recovers and China's economic indicators are showing signs of improvement, which at as today, is still to be questioned.
The above is just my opinion, of course.
IMF had earlier revised the growth rate from 3.3% to 3.1%.
China and pretty much of the major Asian economies have been steadily reduced their respective interest rates.
So how about the Federal Reserve? I think any rate hike will likely to be deferred until 2016, provided the global economy recovers and China's economic indicators are showing signs of improvement, which at as today, is still to be questioned.
The above is just my opinion, of course.
Wednesday, October 21, 2015
LEG UPDATE
LEG announced that it has acquired a 5.5% stake and an option over an additional 4.45% stake in Manas Resources LLP ("Gold Company"), the holder of a licence to explore and mine for gold in Sultan Sary, Narynskaya Oblast, Kyrgyzstan, in exchange for its interests in Manas Minerals LLP, which has coal interests. The option has a nominal exercise price and vests on Gold Company achieving certain milestones.
About the Licence
The area is located in the gold-rich Tien-Shan region of Kyrgyzstan and covers approximately 66 sq km. The southwest corner of the area covered by the Licence, an area of approxiatemly 2 sq km, borders on its southern side the Choloktor gold area which under the Soviet Classification system contains a P3 resource of 15 tonnes of gold. Choloktor in turn is bordered by Buchuk, an area which under the Soviet Classification system contains a C1 resource of 20 tonnes of gold and a P3 resource of 41 tonnes of gold. This area in turn borders the Altyntor area which under the Soviet Classification system contain a C1 and C2 resource of 7 tonnes of gold. The structures in the southwest corner of the Licence are similar to those in the gold contaning areas of Choloktor, Buchuk and Altyntor, and it is believed that the same vein runs through all four areas.
For conversion purposes, 1 tonne = 35,274 oz
The swap in asset is timely as coal price has plummeted while gold price is on an upward momentum. Over the long term this new asset could be worth a lot more to LEG.
My disclosure: I own shares of LEG.
The area is located in the gold-rich Tien-Shan region of Kyrgyzstan and covers approximately 66 sq km. The southwest corner of the area covered by the Licence, an area of approxiatemly 2 sq km, borders on its southern side the Choloktor gold area which under the Soviet Classification system contains a P3 resource of 15 tonnes of gold. Choloktor in turn is bordered by Buchuk, an area which under the Soviet Classification system contains a C1 resource of 20 tonnes of gold and a P3 resource of 41 tonnes of gold. This area in turn borders the Altyntor area which under the Soviet Classification system contain a C1 and C2 resource of 7 tonnes of gold. The structures in the southwest corner of the Licence are similar to those in the gold contaning areas of Choloktor, Buchuk and Altyntor, and it is believed that the same vein runs through all four areas.
For conversion purposes, 1 tonne = 35,274 oz
The swap in asset is timely as coal price has plummeted while gold price is on an upward momentum. Over the long term this new asset could be worth a lot more to LEG.
My disclosure: I own shares of LEG.
Tuesday, October 20, 2015
SETBACK IN LGO
LGO announced that its last well, GY678, encountered a setback when they could not recomplete the well and thus had to seal the well. This is a grave setback as many were hoping that GY678 which encountered 480 ft of net oil pay in the C-Sands could improve the company's oil production greatly.
With this setback shares of LGO plummeted more than 30%.
With almost US$1.9M spent on the well, including a potential liability when the boring equipment got entangled with the pipe (further investigations will be conducted to find out what actually happened), could put LGO in breach of its cash ratios covenants in the BNP loan.
However, management reiterated that LGO will continue with its programme to drill the Goudron Sandstone to continue to generate cash flow, and has enough cash to pay its monthly payment to BNP.
I view this setback gravely as it means derailing some of LGO's plans.
Nevertheless, these are often the risks associated with resource companies and these risks are often high. So it is important that you always do your own research as our tolerance for risks often differs.
My disclosure: I own shares of LGO.
With this setback shares of LGO plummeted more than 30%.
With almost US$1.9M spent on the well, including a potential liability when the boring equipment got entangled with the pipe (further investigations will be conducted to find out what actually happened), could put LGO in breach of its cash ratios covenants in the BNP loan.
However, management reiterated that LGO will continue with its programme to drill the Goudron Sandstone to continue to generate cash flow, and has enough cash to pay its monthly payment to BNP.
I view this setback gravely as it means derailing some of LGO's plans.
Nevertheless, these are often the risks associated with resource companies and these risks are often high. So it is important that you always do your own research as our tolerance for risks often differs.
My disclosure: I own shares of LGO.
TROUBLE BREWING IN CHINA'S BOND RALLY?
More than a week ago, I shared with you a link about China's bond rally.
Now, more investors are pledging their bonds as collateral to buy even more bonds in order to increase their overall profits. The frantic rush to buy bonds could be due to the stock market's crash in the summer which push investors to buy bonds which are considered low risk while providing a steady income, and perhaps driven by the fear of further cuts in interest rate which could make income based savings more and more unattractive. But by pledging the bonds as collateral in order to reinvest the borrowed money only serves to magnify the risk level. Again we can see greed taking precedence over prudence.
The flight of capital into bonds is turning into yet another potential bubble.
Sinosteel has failed to make payment of interest due. How many more companies could face similar default as China is sitting on a US$16T corporate debt. These debts need to be repaid, and in a slowing economy, it just makes the task more difficult. A wave of potential default could cause serious repercussions in an already inflated bond market.
A bond market when it bursts, carries greater ramifications than a stock market crash because it will deter investors from lending money, thus affecting the overall growth of the economy.
Link: http://www.bloomberg.com/news/articles/2015-10-20/china-s-overheated-bond-market-showing-strain-for-local-bankers
Now, more investors are pledging their bonds as collateral to buy even more bonds in order to increase their overall profits. The frantic rush to buy bonds could be due to the stock market's crash in the summer which push investors to buy bonds which are considered low risk while providing a steady income, and perhaps driven by the fear of further cuts in interest rate which could make income based savings more and more unattractive. But by pledging the bonds as collateral in order to reinvest the borrowed money only serves to magnify the risk level. Again we can see greed taking precedence over prudence.
The flight of capital into bonds is turning into yet another potential bubble.
Sinosteel has failed to make payment of interest due. How many more companies could face similar default as China is sitting on a US$16T corporate debt. These debts need to be repaid, and in a slowing economy, it just makes the task more difficult. A wave of potential default could cause serious repercussions in an already inflated bond market.
A bond market when it bursts, carries greater ramifications than a stock market crash because it will deter investors from lending money, thus affecting the overall growth of the economy.
Link: http://www.bloomberg.com/news/articles/2015-10-20/china-s-overheated-bond-market-showing-strain-for-local-bankers
Monday, October 19, 2015
CHINA'S GDP: WHAT'S NEXT?
The GDP shows indication of a gradual change from manufacturing to services driven by consumption. This could see a transition from an export based economy to a consumption based economy.
In line with that, economists are also predicting a new normal in growth for China in that future growth will be in the 6% - 7% range.
The slow growth in manufacturing and fixed asset investment could impact upon commodities driven economies, such as Australia and Brazil.
Most economists believed that China has still some room for stimulus, either by reducing its interest rates and capital reserve ratio to stabilise growth.And herein lies the problem. If China continues to reduce its interest rates it will only serve to make the US$ stronger. Amidst a stronger US$, inflation in the US will be subdued. Earnings from major multi-national corporations will also fall which impact upon their investment in capital goods and less willing to increase the wage of employees. These factors will cause the US economy to slow down as well.
So with slow wage growth, low inflation and a potentially slow down in the US economy, the Federal reserve will unlikely to raise interest rates in the foreseeable future.
The world economy it seems is caught in a vicious circle.
The above are just my opinion.
In line with that, economists are also predicting a new normal in growth for China in that future growth will be in the 6% - 7% range.
The slow growth in manufacturing and fixed asset investment could impact upon commodities driven economies, such as Australia and Brazil.
Most economists believed that China has still some room for stimulus, either by reducing its interest rates and capital reserve ratio to stabilise growth.And herein lies the problem. If China continues to reduce its interest rates it will only serve to make the US$ stronger. Amidst a stronger US$, inflation in the US will be subdued. Earnings from major multi-national corporations will also fall which impact upon their investment in capital goods and less willing to increase the wage of employees. These factors will cause the US economy to slow down as well.
So with slow wage growth, low inflation and a potentially slow down in the US economy, the Federal reserve will unlikely to raise interest rates in the foreseeable future.
The world economy it seems is caught in a vicious circle.
The above are just my opinion.
Sunday, October 18, 2015
CHINA'S GDP ROSE 6.9%
China's GDP rose 6.9% beating a forecast of 6.8%.
However, underneath the gloss, lies some weak data as well:
1) Industrial output rose 5.7% vs a forecast of 6%
2) Fixed asset investment rose 10.3% vs a forecast of 10.8%
3) Secondary industry which includes manufacturing weakened to a 6% expansion
The above were mitigated by growth in the services sector which quickened to 8.4% and retail sales which rose 10.9% vs a forecast of 10.8% .
This goes to show that China's manufacturing sector remains weak and as long as that weakness persists, commodity prices are likely to remain subdued as well.
Fixed assets investment has been falling since reaching a high of more than 30% in 2009.
Source: Bloomberg
Saturday, October 17, 2015
US RIGS COUNT
US rigs count fell by 10 in the week ending 16 October, 2015 to 595. This is the seventh consecutive week that the rigs count have fallen. The news immediately drove the oil price to US$47.26 a barrel.
Elsewhere, shale oil continue to face pressure as reported by Bloomberg:
http://www.oregonlive.com/opinion/index.ssf/2015/10/time_is_running_out_for_americ.html
Elsewhere, shale oil continue to face pressure as reported by Bloomberg:
http://www.oregonlive.com/opinion/index.ssf/2015/10/time_is_running_out_for_americ.html
PPHM, LGO AND UKOG UPDATES
PPHM
PPHM's collaboration with AstraZeneca will include a later second stage trial. The trial will combine PPHM's Bavituximab and AstraZeneca's Durvalumabin a global Phase II study in patients with previously treated squamous or non-squamos non-small cell lung cancer (NSCLC). The randomised Stage II trial will be conducted by PPHM
LGO
LGO recently acquired a 25% stake in Beach oilfield Limited (BOLT) with which LGO already holds an agreement to acquire the deep petroleum rights to all of BOLT's South West Peninsula interests in Trinidad. With this 25% stake, LGO is now able to access an interest in the shallow petroleum rights held by BOLT including the producing Bonasse Oilfield.
UKOG
UKOG has received a conceptual oil development studies from Xodus Group Ltd and Barton Willmore. The studies are based on developing multiple sites across the UKOG's licences, each of which would consist of a conceptual multi-well pad with 12 horizontal production wells delivering 2,500 bopd at peak production. it remains a plan for the time being but it does show that UKOG is looking at ways to maximise production across their licences
My disclosure: I own shares of PPHM, LGO and UKOG
PPHM's collaboration with AstraZeneca will include a later second stage trial. The trial will combine PPHM's Bavituximab and AstraZeneca's Durvalumabin a global Phase II study in patients with previously treated squamous or non-squamos non-small cell lung cancer (NSCLC). The randomised Stage II trial will be conducted by PPHM
LGO
LGO recently acquired a 25% stake in Beach oilfield Limited (BOLT) with which LGO already holds an agreement to acquire the deep petroleum rights to all of BOLT's South West Peninsula interests in Trinidad. With this 25% stake, LGO is now able to access an interest in the shallow petroleum rights held by BOLT including the producing Bonasse Oilfield.
UKOG
UKOG has received a conceptual oil development studies from Xodus Group Ltd and Barton Willmore. The studies are based on developing multiple sites across the UKOG's licences, each of which would consist of a conceptual multi-well pad with 12 horizontal production wells delivering 2,500 bopd at peak production. it remains a plan for the time being but it does show that UKOG is looking at ways to maximise production across their licences
My disclosure: I own shares of PPHM, LGO and UKOG
Tuesday, October 13, 2015
GOLDMAN SACHS: EMERGING MARKETS COULD BE THE THIRD WAVE OF A FINANCIAL CRISIS
Emerging markets are faced with several factors which could lead to a third wave of a financial crisis - according to Goldman Sachs.
This time I am inclined to agree due to the following factors:
1) Collapse of commodity prices
2) Collapse of emerging currencies
3) Assets bubbles in the run up to the aforementioned collapse
4) Household Debt to GDP which is the highest in recent years
5) Household Debt to Disposable Income which is also the highest in recent years, especially Malaysia, Thailand, South Korea and Singapore
Add in all the above with deteriorating GDP growth in many emerging economies, and you will have the perfect storm.
Recently IMF has cut the global growth outlook to 3.1% from 3.3%.
In a global slowdown, one has to ask, how are those countries saddled with huge debts are able to meet the debt repayments. Not only that, servicing debts denominated in US$ has become more expensive due to the depreciation in the value of emerging currencies. With the prospect of the Federal Reserve hiking rates, the cost of refinancing too would have increased in anticipation of such a hike.
If there's anytime for portfolio diversification or increase your cash holding, this is perhaps a time to consider.
Here's the link: http://www.cnbc.com/2015/10/12/is-em-turmoil-the-third-wave-of-the-financial-crisis-goldman-thinks-so.html
.
This time I am inclined to agree due to the following factors:
1) Collapse of commodity prices
2) Collapse of emerging currencies
3) Assets bubbles in the run up to the aforementioned collapse
4) Household Debt to GDP which is the highest in recent years
5) Household Debt to Disposable Income which is also the highest in recent years, especially Malaysia, Thailand, South Korea and Singapore
Add in all the above with deteriorating GDP growth in many emerging economies, and you will have the perfect storm.
Recently IMF has cut the global growth outlook to 3.1% from 3.3%.
In a global slowdown, one has to ask, how are those countries saddled with huge debts are able to meet the debt repayments. Not only that, servicing debts denominated in US$ has become more expensive due to the depreciation in the value of emerging currencies. With the prospect of the Federal Reserve hiking rates, the cost of refinancing too would have increased in anticipation of such a hike.
If there's anytime for portfolio diversification or increase your cash holding, this is perhaps a time to consider.
Here's the link: http://www.cnbc.com/2015/10/12/is-em-turmoil-the-third-wave-of-the-financial-crisis-goldman-thinks-so.html
.
Monday, October 12, 2015
TAKING A LONG TERM VIEW ON GOLD MINING COMPANIES
I have written about buying gold mining companies recently. But such investments must take a long term view. Gold will always be a hedge against potential crisis or inflation. In the near term, gold price could be trending down or trade within a tight band. But in the longer term, gold could rise owing to these few factors:
1) A potential Asian Debt Crisis originating in China and affecting the whole of Asia
2) A China recession which prevents the Federal Reserve from raising further rates. A China recession can turn into a global recession
3) Amidst QE in Japan and EU, and a low interest rate policy across Asia, the world is awash with liquidity, and this does not allow the Federal Reserve to raise rates consecutively every quarter because this will price US goods out of the market. But the danger, when the market is awash with liquidity and if output continues to lag, coupled with depressed currencies, the world is ripe for a super inflation.
Any of the 3 scenarios could happen. So at least diversify your portfolio into some gold mining companies because in precisely those moments, gold will shine. At the most, 10% - 15% of your portfolio should include gold mining companies.
The above is just my opinion. You are encouraged to do your own research.
Sunday, October 11, 2015
SECOND LINER GOLD MINING COMPANIES TO EXPLORE
Gold is trending up and gold mining companies do look a cheap bargain, many having seen their marketcap reduced by more than 80% form their historic highs.
You can explore ASX listed MML (Medusa Mining) which in 2015 write off more than AUD200M and look to start anew. Low producer from the Philippines. Current price of AUD0.62 vs historic high of AUD8.35
Another is US listed KGC (Kinross Gold) which has US$1B cash at hand. Has recently been upgraded with a target price of US$2.55.
Please do your own research before buying.
I own MML and have intention to buy KGC in the next 24 hours
You can explore ASX listed MML (Medusa Mining) which in 2015 write off more than AUD200M and look to start anew. Low producer from the Philippines. Current price of AUD0.62 vs historic high of AUD8.35
Another is US listed KGC (Kinross Gold) which has US$1B cash at hand. Has recently been upgraded with a target price of US$2.55.
Please do your own research before buying.
I own MML and have intention to buy KGC in the next 24 hours
Friday, October 9, 2015
US RIGS COUNT
US rigs count dropped by 9, pushing the total to 605.
This could possibly lend some support to the oil price next week.
However, investors should also pay heed to the US stockpile report out in the mid week as the stockpile could continue to rise as many refineries go into maintenance mode in autumn. A substantial increase in the stockpile could hamper the upward march of oil price.
This could possibly lend some support to the oil price next week.
However, investors should also pay heed to the US stockpile report out in the mid week as the stockpile could continue to rise as many refineries go into maintenance mode in autumn. A substantial increase in the stockpile could hamper the upward march of oil price.
OUT OF A FRYING PAN AND INTO FIRE?
During the recent equity sell off in China, many investors flocked to the safe haven of bonds, and in the process push up the price of bonds to the highest in six years.This prompted companies to issue bonds to the highest level on record.
In an economy which is showing signs of fatigue and slowing down, revenue and profits are bound to decline. So companies may face difficulties in meeting the interest payments for bonds, more so because they had issued bonds at record pace.
So could this be a case that China, after the collapse of the stock market in July, 2015 could see another bubble forming in the bond market? Is this a case of being out from the frying pan and into the fire?
A bond market crash in China would surely cause a rout in bond markets in emerging markets, and this could spell trouble for many of the emerging economies which are heavily indebted, and where foreign ownership of the bonds are high.
What next is a stock market sell off and a fall in the value of currencies vs the US$.
The world as it is, is watching China. China is the 800 pound gorilla in room and if its economy runs amok, emerging economies will be the collateral damage.
Link: http://www.bloomberg.com/news/articles/2015-10-08/if-you-thought-china-s-equity-bubble-was-scary-check-out-bonds
In an economy which is showing signs of fatigue and slowing down, revenue and profits are bound to decline. So companies may face difficulties in meeting the interest payments for bonds, more so because they had issued bonds at record pace.
So could this be a case that China, after the collapse of the stock market in July, 2015 could see another bubble forming in the bond market? Is this a case of being out from the frying pan and into the fire?
A bond market crash in China would surely cause a rout in bond markets in emerging markets, and this could spell trouble for many of the emerging economies which are heavily indebted, and where foreign ownership of the bonds are high.
What next is a stock market sell off and a fall in the value of currencies vs the US$.
The world as it is, is watching China. China is the 800 pound gorilla in room and if its economy runs amok, emerging economies will be the collateral damage.
Link: http://www.bloomberg.com/news/articles/2015-10-08/if-you-thought-china-s-equity-bubble-was-scary-check-out-bonds
Thursday, October 8, 2015
CHINA'S SILK ROAD INITIATIVE
China may be sidelined in the TPP, but they are undertaking an initiative of their own. The building of a modern silk Road linking China through Central Asia and Russia to Europe is estimated to cost trillions of US$.
Link: http://news.xinhuanet.com/english/2015-03/28/c_134105435.htm
Link: http://news.xinhuanet.com/english/2015-03/28/c_134105435.htm
Tuesday, October 6, 2015
INTERESTING CORRELATION OF OIL BY BNP PARIBAS
Interesting correlation of oil as happened in 1985 and what is happening now. Look at the charts. The similarity is incredible!
http://www.cnbc.com/2015/10/06/the-crude-oil-chart-looks-a-lot-like-1985-bnp-paribas.html
http://www.cnbc.com/2015/10/06/the-crude-oil-chart-looks-a-lot-like-1985-bnp-paribas.html
GOLD IS SHINING NOW. TIME TO BUY GOLD MINING STOCKS
With Japan expecting another QE, EU remains soft and China facing the threat of a hard landing, the Federal Reserve has decided against raising interest rate in the short term. Many expect it to be Q1 2016. Gold is shining now. With many gold mining stocks having had their marketcap reduced by some 80%, now's the time to buy some.
3 stocks you could explore:
ASX listed Newcrest Mining (NCM) and St Barbara (SBM) and US listed Barrick Gold (ABX)
Please do your own research before buying.
My disclosure: I own shares of SBM.
3 stocks you could explore:
ASX listed Newcrest Mining (NCM) and St Barbara (SBM) and US listed Barrick Gold (ABX)
Please do your own research before buying.
My disclosure: I own shares of SBM.
LGO RAISED 1M POUNDS
LGO reported that it has raised 1M Pounds by issuing 111,111,110 new ordinary shares at 0.90 pence a share as working capital to be deployed for drilling purposes at the Goudron Field targeting the Goudron Sandstone. This did not go down well with investors and provide an opportunity for short sellers to pound on the stock.
Nevertheless, it is a step in the right direction to target the Goudron Sandstone which has a more consistent flow rate as demonstrated by Well GY672, very much unlike the C- Sands which has a high depletion in the flow rate.
I think LGO knew of the shortcomings and therefore realigned their strategy. The drill to the C-Sands however are not put to waste as it has provided LGO with invaluable data to plan for a water flood in the future.
My disclosure: I won shares of LGO.
Nevertheless, it is a step in the right direction to target the Goudron Sandstone which has a more consistent flow rate as demonstrated by Well GY672, very much unlike the C- Sands which has a high depletion in the flow rate.
I think LGO knew of the shortcomings and therefore realigned their strategy. The drill to the C-Sands however are not put to waste as it has provided LGO with invaluable data to plan for a water flood in the future.
My disclosure: I won shares of LGO.
Monday, October 5, 2015
LEG SHOT UP 50% IN EARLY TRADE YESTERDAY. HERE'S WHY
LEG shot up 50% in early trade yesterday before settling at 0.107 pence, an increase of 33.13% over its opening price.
LEG reported that its investee company, Virtual Stock (VS) valuation has gone up to 58M Pounds from 25M Pounds a year earlier. With a 7% stake in VS, this puts the value of LEG's stake in VS alone at more than 4M Pounds, higher than its current marketcap of approximately 2M Pounds, and that excluding its other investments.
On top of that, VS reported that Nick Jenkins, the founder of moonpig.com has bought a small stake in VS. Nick has been actively investing in start up businesses after he sold moonpig,com for 120M Pounds. His purchase of a stake in VS is a timely endorsement.
My disclosure: I own shares of LEG.
LEG reported that its investee company, Virtual Stock (VS) valuation has gone up to 58M Pounds from 25M Pounds a year earlier. With a 7% stake in VS, this puts the value of LEG's stake in VS alone at more than 4M Pounds, higher than its current marketcap of approximately 2M Pounds, and that excluding its other investments.
On top of that, VS reported that Nick Jenkins, the founder of moonpig.com has bought a small stake in VS. Nick has been actively investing in start up businesses after he sold moonpig,com for 120M Pounds. His purchase of a stake in VS is a timely endorsement.
My disclosure: I own shares of LEG.
Friday, October 2, 2015
ANOTHER STERLING PERFORMANCE FROM NAGACORP
Nagacorp reported that it January - September revenue increased 47% while its VIP gaming increased 52% from a year ago.
Compared to its peers in Macau, which are experiencing a drop in both revenue and VIp gaming, Nagacorp stands out as a BUY.
My disclosure: I own shares of Nagacorp.
Compared to its peers in Macau, which are experiencing a drop in both revenue and VIp gaming, Nagacorp stands out as a BUY.
My disclosure: I own shares of Nagacorp.
CREDIT SUISSE: MACAU GAMING STOCKS CORRECTION OVERDONE
Credit Suisse reported that the Macau gaming stocks correction is overdone and so far the hotel booking of rooms in the Golden Week has been satisfying.
Macau also reported that its visitorship rose 7.6% on 1 October 2015 compared to a year ago.
Credit Suisse top pick is Sands China.
Many of the Macau casino stocks have inf act fallen almost 70% from their record highs. This could be an opportune time to invest in some bigger names like Sands China, Wynn Macau and Galaxy.
Nevertheless, for some lower risk exposure, Nagacorp is another good alternative as their dividend yield is high. Its 2015 dividend payout is HK$0.3704 and this represents a 7.5% yield based on its current price of HK$4.92.
Moreover, its VIP gaming has gained vs the the fall in Macau casinos.
My disclosure: I own shares of Nagacorp.
Macau also reported that its visitorship rose 7.6% on 1 October 2015 compared to a year ago.
Credit Suisse top pick is Sands China.
Many of the Macau casino stocks have inf act fallen almost 70% from their record highs. This could be an opportune time to invest in some bigger names like Sands China, Wynn Macau and Galaxy.
Nevertheless, for some lower risk exposure, Nagacorp is another good alternative as their dividend yield is high. Its 2015 dividend payout is HK$0.3704 and this represents a 7.5% yield based on its current price of HK$4.92.
Moreover, its VIP gaming has gained vs the the fall in Macau casinos.
My disclosure: I own shares of Nagacorp.
US OIL RIGS COUNT DROPPED TO 614
US oil rigs count dropped by most in recent weeks, falling 26 to 614.
Oil rose in as a result and ended the week at US$45.54 per barrel.
With US jobs falling below expectations on Friday (2 October), many are betting that the Federal Reserve could delay the increase in the interest rate to 2016.
We could see oil price moving upwards into the US$46 - US$47 range next week.
Nevertheless the Federal Reserve could still surprise and initiate a hike in interest rate, but a better gauge will be the Q3 GDP reading.
Oil rose in as a result and ended the week at US$45.54 per barrel.
With US jobs falling below expectations on Friday (2 October), many are betting that the Federal Reserve could delay the increase in the interest rate to 2016.
We could see oil price moving upwards into the US$46 - US$47 range next week.
Nevertheless the Federal Reserve could still surprise and initiate a hike in interest rate, but a better gauge will be the Q3 GDP reading.
MORE SHALE COMPANIES COULD FILE FOR BANKRUPTCY DUE TO FINANCIAL DISTRESS
Oil price has remained in the US$40s per barrel. With mounting debts and low revenue, many shale oil companies could find themselves in financial distress in the next few months due to the following factors:
1) Data from the US Energy information Administration showed that the percentage of debt service vs operating cash flow has increased from 40+% in Q1 2012 to 80+% in Q2 2015. This means that a large chunk of the revenue is used just to service debts. How long could these companies last?
2) Oil price at persistently low levels is not helping either, despite the fact that many producers say that they are improving their efficiency and that they could produce more at lower costs. This is true, but will they ever generate enough cash to pay off the debts and capital invested in field. Most companies use EBIDTA to measure their progress. This is hugely misleading as we now know that the Interest (from debts) is high and so is the Depreciation (investment in oil field and machinery).
3) Financial institutions will be reviewing US shale oil companies from October - November whether to increase, maintain or reduce their credit lines. Some may not meet the new standards due to a shrinking balance sheet.When oil price declines, so too will be the value of the oil fields.
Here's an interesting article from thestreet.com which highlights the number of companies which could face some fianncial challenges ahead.
http://www.thestreet.com/story/13301491/1/how-many-more-oil-gas-companies-will-file-for-bankrptcy.html
1) Data from the US Energy information Administration showed that the percentage of debt service vs operating cash flow has increased from 40+% in Q1 2012 to 80+% in Q2 2015. This means that a large chunk of the revenue is used just to service debts. How long could these companies last?
2) Oil price at persistently low levels is not helping either, despite the fact that many producers say that they are improving their efficiency and that they could produce more at lower costs. This is true, but will they ever generate enough cash to pay off the debts and capital invested in field. Most companies use EBIDTA to measure their progress. This is hugely misleading as we now know that the Interest (from debts) is high and so is the Depreciation (investment in oil field and machinery).
3) Financial institutions will be reviewing US shale oil companies from October - November whether to increase, maintain or reduce their credit lines. Some may not meet the new standards due to a shrinking balance sheet.When oil price declines, so too will be the value of the oil fields.
Here's an interesting article from thestreet.com which highlights the number of companies which could face some fianncial challenges ahead.
http://www.thestreet.com/story/13301491/1/how-many-more-oil-gas-companies-will-file-for-bankrptcy.html
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