ARI (Arrium) : At Rock bottom, ore not?

[Dej]

No need to type in ARI. I can see it sitting there as the 7th most shorted share on the ASX. I can see it is 11.48% shorted, up 7.19 for the week. Not sure what that means. Was it only shorted 11.48-7.19= 4.29% only a week ago?

SNOOPY

Not sure of the calculation, but thats what I would have taken from it.

IMHO its become a spec buy, but I believe at these levels they are oversold and could come back to approx 40c over the short term as it adjusts and settles.

IMHO of course. Anyone holding?

I maybe, as of 35.5c.

[Stranger_Danger]

No need to type in ARI. I can see it sitting there as the 7th most shorted share on the ASX. I can see it is 11.48% shorted, up 7.19 for the week. Not sure what that means. Was it only shorted 11.48-7.19= 4.29% only a week ago?

SNOOPY

It means a bunch of generally smart people have *already* made bets that ARI will go down.

It also means guaranteed buying pressure at some stage in future as they cover their short.

I haven't bought yet. I could easily be wrong, but I think the "point of maximum pessimism" will be IF most rights aren't taken up and IF the underwriters act stupidly and IF markets are having a temporary glitch but BEFORE the impact of short covering.

Yes, I know there are a lot of if's in that sentence, but I do see at least the possibility of buying ARI at a stupidly low price, which is what I'm all about.

[Snoopy]

IMHO its become a spec buy, but I believe at these levels they are oversold and could come back to approx 40c over the short term as it adjusts and settles.

IMHO of course. Anyone holding?

I maybe, as of 35.5c.

I jumped in at 38c as previously disclosed. Looks like I could have got an even better price, but I am not concerned. I may yet buy more anyway.

It is interesting what some people regard as a spec buy. Of course everything on the market is a spec buy in one sense. I have no idea where the ARI share price will bottom out, or what the price will be in a week, or a month.

What I do know for sure is that for every 38c I spent I bought 86c worth of tangible assets. Much more than 86c if I count the intangible assets. But I feel there may be some intangible asset writedowns soon, so anything I eventually realize as intangible assets will be a bonus.

I also know for sure that the banking syndicate is quite happy with ARI until FY2017 at least, when the next big parcel of debt is due to rollover.

I also know for sure that even with the huge number of new shares issued in the rights issue, I am buying on an historic PE of 3.9. No that is not a misprint. The historic PE for FY2014 just finished is under 4. In effect the market has already priced in a 50% drop in earnings for FY2015, and no recovery -ever- after that.

Will ARI be facing headwinds in FY2015? Almost certainly, although I note manufacturing figures out of China are already picking up.

Am I taking a risk? Yes, but I would argue my risk with this transaction is much less than say, buying an index fund.

They say if something looks too good to be true, then it often is. But in this case, I have gone over and over figures and all I can see is an unloved but sound company selling very cheaply. It is possibly the lowest risk asset buy I have ever done. Perhaps I am just in a dream and just imagining I purchased ARI? It seems the only rational explanation as to how I could have done it at this price.

SNOOPY

[percy]

I would be very careful with your NTA.If ARI can not make the assets work,things like a steel mill are of very little value.
Could Ryman build a retirement village on the site for example?

[Snoopy]

It means a bunch of generally smart people have *already* made bets that ARI will go down.

It also means guaranteed buying pressure at some stage in future as they cover their short.

I haven't bought yet. I could easily be wrong, but I think the "point of maximum pessimism" will be IF most rights aren't taken up and IF the underwriters act stupidly and IF markets are having a temporary glitch but BEFORE the impact of short covering.

Yes, I know there are a lot of if's in that sentence, but I do see at least the possibility of buying ARI at a stupidly low price, which is what I'm all about.

I think the price of ARI is already absurdly low.

I note on 'shortman' today that ARI has dropped down to 13th on the most hedged list of ASX shares. Now 'only' 9.19% of shares are hedged. Still high but a significant drop on the 11.48% of total shares hedged just yesterday. So maybe 'Shortman' is telling us the point of maximum pessimisism was yesterday?

I guess the great unknown is what UBS will do with the shares they collect in their underwriters bucket. If they had any sense they would at least try to recover what they paid by putting a moritorium on selling their shares for a year. Even 48c is well below asset backing. I woudl say that is achievable after twelve months.

SNOOPY

[Snoopy]

I would be very careful with your NTA.If ARI can not make the assets work,things like a steel mill are of very little value.

Percy this isn't a run down old steel mill. It has just been refurbished. Likewise the port export facilities which ARI owns - mostly brand new. Also ARI holds a big advantage in being so close to their major market China. Note that China hasn't stopped buying iron ore. It has stopped buying iron ore at recent high prices. Everything is still operating, but the economics, at this window in time, are marginal. My gamble is that most market players are putting far too much emphasis on 'this window in time.' Whether I am right or not, time will tell.

SNOOPY

[percy]

Percy this isn't a run down old steel mill. It has just been refurbished. Likewise the port export facilities which ARI owns - mostly brand new. Also ARI holds a big advantage in being so close to their major market China. Note that China hasn't stopped buying iron ore. It has stopped buying iron ore at recent high prices. Everything is still operating, but the economics, at this window in time, are marginal. My gamble is that most market players are putting far too much emphasis on 'this window in time.' Whether I am right or not, time will tell.

SNOOPY

Just go carefully as the market can stay wrong for a very long time.
I remember NZ building woolstores to handle all the wool the Chinese were not buying at "this window in time."
Better to buy a good business at a fair price,rather than a fair business at a good price.

[Corporate]

I'd be very careful with this one. If you assume zero earnings for the next 12 months from the mining business + $200m capex, this will have a serious drag on the rest of the company's performance.

[Snoopy]

Better to buy a good business at a fair price, rather than a fair business at a good price.

I absolutely agree with the above advice. I don't go out looking for deals on underpriced miners. It is not a field of particular interest to me. And there are plenty of mining tales of woe out there from over optimistic shareholders. I am not betting the farm on ARI. I made a measured entry and will see what happens when the rights issue shortfall is announced and what UBS announce they will do with their resulting shares.

The most important thing to me in these deals is my margin of safety. With this deal it is exceptionally large, so I can afford things to go a bit wrong operationally, yet still come out ahead.

Just go carefully as the market can stay wrong for a very long time.
I remember NZ building woolstores to handle all the wool the Chinese were not buying at "this window in time."

The market can be wrong as long as it likes. I have been sitting on my original stake for some thirteen years, because it was too small to economically sell. So I think I have the patience to wait out Mr Market until he comes around more to my way of thinking.

The market for ARI shares is not very relevant to how ARI progreeses from here anyway. ARI have all the money they were seeking, courtesy of a fully subscribed rights issue, even if the underwriter has to take up more shares than they might have envisaged!

SNOOPY

[Snoopy]

I think the price of ARI is already absurdly low.

I note on 'shortman' today that ARI has dropped down to 13th on the most hedged list of ASX shares. Now 'only' 9.19% of shares are hedged. Still high but a significant drop on the 11.48% of total shares hedged just yesterday. So maybe 'Shortman' is telling us the point of maximum pessimisism was yesterday?

This 'shortman' website is getting addictive.

http://www.shortman.com.au/

Yesterday at around 4pm NZ time, 9.19% of ARI shares were 'short sold'. Today it is down to just 3.46%. Obviously someone is buying up big to close out their shorts! Yet the actual head share price is still falling, down 0.3c to 35.7c from yesterday's close. I get the feeling it is close to bottoming out. But next week is a whole new week!

SNOOPY