The deal by Vale of Brazil and Anglo-Australian BHP Billiton with Japanese and Chinese mills marks the end of the 40-year-old benchmark system of annual contracts and lengthy price negotiations. The industry instead agreed to move to quarterly contracts linked to the nascent iron ore spot market.

“The benchmark system has ended. There is no comeback,” said a senior mining executive directly involved in the talks.

The world’s top ore miners stand to profit hugely in the short term from the new price system. One executive estimated that the profits of the big three producers, Vale, Rio Tinto and BHP Billiton, would be boosted by at least $5bn this year.

Those BHP puts I bought as a quasi-hedge on AYSI should plummet even further now, but maybe it will cost less to reload. I guess that depends in part on to what extent this iron ore news is already priced into the BHP shares.

Related posts:

1. Rethinking a quasi-hedge on AYSI On the old blog last month, I wrote about the...
2. BHP’s quarter I was going to blog about this last night, but...
3. Alloy Steel news There has been some caterwauling lately about the relative paucity...

Related posts brought to you by Yet Another Related Posts Plugin.

No related posts.

One year chart for USEG

U.S. Energy Corp. (Nasdaq Capital Market: USEG) issues its annual report. Here’s the full filing, via the SEC’s website, and here are the company’s highlights via its press release. Nothing too surprising here; the investment thesis remains on track since I last blogged about this company. These were the highlights the company listed in its press release:

Selected Highlights for 2009 and Period Subsequent to December 31, 2009

* Entered into a Drilling Participation Agreement (“DPA”) with Brigham Exploration Company (Nasdaq:BEXP – News) (“Brigham”) to earn working interests in up to fifteen 1,280 acre spacing units in Brigham’s Rough Rider project area located in Williams and McKenzie Counties of North Dakota; USE has elected in to participate in all 15 initial wells;
* Successfully drilled and completed the first six wells under the DPA with Brigham;
* Produced approximately 1,000 net BOE/D in fourth quarter 2009 and exited 2009 with an average rate of 1,400 net BOE/D for the month of December 2009;
* As of March 12, 2010, daily net production from all of wells was approximately 1,175 barrels of oil and 1,780 Mcf of natural gas (1,470 BOE/D);
* Increased revenue $7.34 million over prior year, primarily due to increased oil and gas revenue in the fourth quarter 2009;
* Increased proved reserves by 453% or 889,738 BOE over prior year (1,086,203 BOE net proved reserves as of 12-31-09);
* Retired $16.8 million construction loan on the Remington Village project in Gillette, Wyoming;
* Received the $1 million annual option payments for 2009 and 2010 from Thompson Creek Metals Company Inc. in 2009 pursuant to the terms of the Exploration, Development and Mine Operating Agreement signed in August 2008;
* Raised $24.3 million after offering costs in underwritten public offering of 5,000,000 shares of common stock at a price of $5.25 per share;
* Increased line of credit from $5 million to $10 million;
* Ended year in position of strength with approximately $55 million in cash, cash equivalents and treasuries with nominal debt on the balance sheet.

The company’s conference call is scheduled for next Tuesday. Last year this time, there was exactly one question on the call, and I remember noting that it was one of the shortest conference calls I’d ever listened to. The company was trading for less than its net cash back then.

Incidentally, USEG now has options traded on it. This must have started fairly recently. Checking Portfolio Armor, put protection on USEG is extremely expensive though — I had to set my threshold (the maximum decline in the value of the position I indicated I was willing to risk) to 31% before I was presented with any optimal put options (Portfolio Armor will not present a solution if the cost of protection is greater than the loss you are looking to protect against¹). Not too surprising, I suppose, given the stock’s volatility in recent months, and the paucity and iliquidity of its put options.

¹To do otherwise would be analogous to presenting a quote for collision insurance with a $500 premium to someone whose car had a book value of less than $500.

Related posts:

1. New short position: BEXP I have been thinking about Brigham Exploration Co. (Nasdaq: BEXP)...
2. That didn’t work “That” being shorting Brigham Exploration Co. (Nasdaq: BEXP) at $13.11...
3. Bought puts on BPT [caption id="" align="aligncenter" width="512" caption="BPT versus OIL over the last...

Related posts brought to you by Yet Another Related Posts Plugin.

Related posts:

1. Rethinking a quasi-hedge on AYSI On the old blog last month, I wrote about the...
2. As expected, record profits for AYSI Alloy Steel International (OTC BB: AYSI.OB) filed its 10-Q today....
3. Preliminary profit advice from AYSI [caption id="" align="alignnone" width="400" caption="One Day Chart for Alloy Steel...

Related posts brought to you by Yet Another Related Posts Plugin.

This clip is an example of why I stopped watching CNBC. Larry Kantor has no idea what Vitaliy Katsenelson¹ is talking about — he’s trying to predict the next quarter, and Vitaliy is talking about secular trends that persist for one or more decades. The producer who decided to pair Kantor and Katsenelson didn’t know enough about either of them to realize that it made no sense to pair them in one segment. Maria Bartiromo, as usual, seems to have only the most cursory grasp of what’s being discussed (e.g., dividends = good), so she can’t ask any insightful questions. Plus those blond highlights in her hair look so unnatural as to be distracting.

Vitaliy does a good job of articulating his points despite all that though.

Hat tip to GuruFocus for this clip, which I wouldn’t have seen otherwise.

¹We mentioned Vitaliy Katsenelson, and linked to his secular range-bound market thesis, in this post, which the related posts plug in didn’t catch.

Related posts:

1. Two bearish articles First, John Authers in the Financial Times: How baby boomers...

Related posts brought to you by Yet Another Related Posts Plugin.

Second, via GuruFocus, Vitaliy Katsenelson presents this PowerPoint slide show: China — The Mother of All Black Swans. Katsenelson argues that China’s economy is bubble about to burst. A few thoughts on this.

In first footnote to this post on the old blog, we summarized the positive and negative scenarios on the Chinese economy and its stimulus program.

On slide #4 of Katsenelson’s presentation, where he compares China to Starbucks, he ignores a material response by Starbucks to its “late stage growth obesity”: Starbucks raised prices — both directly, and indirectly. For a couple of indirect examples, ahead of Christmas, Starbucks used to sell its cards at a 20% discount to their cash value at Costco; it didn’t do that at the end of 2009. Also, Starbucks used to offer gold card members 10% off all purchases; now it just offers a coupon for a free drink every for every 15 drinks you buy.

On slide #10 there’s no mention (perhaps because it was written before the news) of China’s move to rein in bank lending yesterday.

On slide #17 there’s no citation for the claim of trillions of dollars in Chinese government-backed loans. This is a key point because while others (e.g., the FT’s Martin Wolf) acknowledge that the Chinese banking system probably has a lot of bad loans, they believe China can easily afford to recapitalize its banks, if necessary.

On slide #18, there’s a list of negative consequences of China’s economy going bust, but no investment prescription to profit from this.

Related posts:

1. An example of why I don’t watch CNBC This clip is an example of why I stopped...
2. Big news in iron and steel The FT reports: The deal by Vale of Brazil and...

Related posts brought to you by Yet Another Related Posts Plugin.