We have all seen China’s PMI numbers and they look okay. Yes, they slowed a bit, but this was expected. More importantly, it looks like May’s rapid and violent de-stocking exercise has come to an end (China’s July PMI new orders versus inventories ratio saw its first increase since April). Some of the excitable financial market types who worried that China was both overheating and having a housing bubble while at the same time rapidly moving towards a crash landing now agree that China is in the process of a “soft landing” – i.e. a modest, orderly slowdown. There is some good evidence for this. Services and consumption are faring much better than manufacturing and heavy industry. Retail sales remain strong, and retail sentiment is showing a very significant improvement at the same time as pollution-creating and energy intensive industries face fairly meaningful headwinds.

This slowdown appears to be uneven and shallow. Of course, much of it is self-imposed. So, for instance the restrictions on credit extension, the property market, and energy & resource intensive heavy industry are all, in theory, easy to reverse and could all even go in the complete opposite direction if necessary – possibly on a moment’s notice, as we saw back at the end of 2008.

Although managing China’s economy is never an easy task, Chinese policymakers should be feeling pretty confident right now. They have just had two consecutive experiences of getting China’s economy to respond extremely well to government-led signals and policies. Just as the old adage “don’t fight the Fed” made its way into the lexicon I suspect that » Read more: Jeff Coggshall – July 2010

For sale: a minority interest in one undeveloped iron ore deposit, no infrastructure, dodgy neighbourhood (had civil war in recent past), management has criminal conviction for heroin offences and civil penalty for misleading the market. Offers in excess of $1.5bn entertained, mandarin speakers preferred.

For sale: shell company, ‘for carrying on an undertaking of great financial advantage, but no one to know what it is’. Will compete in the open market to buy mining assets against deep pocketed sovereign states (who have no imperative to make profits), prime managerial sponsor has no resource experience, time share on oligarch’s yacht possible for selected investors if failed political spin doctor not using it.

For sale: selection of Australian coal mines, contracted to sell majority of output at fixed, below market prices to local utilities, will require foreign investment approval, offers in excess of DCF valuation.

For sale: in the near future sundry assets unwanted by oligarch. No translation of concepts such as governance or minority rights available from the Russian. Last float down 33% in six months.

If these ads had appeared in the mining press recently, one would be forgiven for thinking that the vendors would not have been knocked over in the rush. Yet African Minerals has received an undertaking from Shandong Steel to invest $1.5bn in Sierra Leone, Vallar has raised $1bn for God knows what and Banpu has taken over Centennial. In addition, Posco has taken a stake in AMCI (Australia), KEPCO has bought 20% of an Indonesian coal miner and Adani of India seems likely to invest $1bn in a very large but currently stranded coal asset in Queensland. Even Oleg Deripaska thinks he can float more of his Siberian ‘assets’. Iron ore prices may have peaked, China may slow a little, but the land grab for resources is still very much on. » Read more: Mark Fleming – July 2010

Despite an overall lacklustre performance for the market, given strong rallies in other leading stockmarkets, there was a noticeable shift in market leadership with smaller companies starting to underperform larger companies. This can probably be attributed to the sharp decline over the preceding months in large caps and the significantly higher than expected quarterly earnings announcements that produced several unexpected upward revisions. Of less surprise but as encouraging was the dramatic improvement in terms of free cashflow, a reflection of the significant restructuring over the last 18 months, which we continue to believe has been under appreciated by investors. With capex levels now running below depreciation this trend should continue. In addition, it may also explain why the corporate sector has been significantly less animated about the recent yen appreciation.

The conundrum that lies ahead is this: » Read more: Rupert Kimber – July 2010

The portfolio was up 3.x% for the month. The greatest gains occurred in mining and alternative energy. The biggest winners were two stocks highlighted in previous reports – Linc Energy +56% (underground coal gasification) and Lynas +39% (rare earths).

The portfolio’s most profitable position was in Linc Energy, which is utilising underground coal gasification (UCG) technology to produce hydrogen and methane gases from coal seams deemed uneconomic to mine. The cost of UCG is significantly more competitive than production of coal-bed methane and LNG. However, the catalyst for unlocking value is the negotiation to sell several of its non-core assets, including Australian coal deposits Emerald and Galilee in Queensland, which alone could be worth more than $1.5 billion, a multiple of the current market capitalisation of the entire company. We expect a transaction to close shortly on the sale of the Galilee coal assets to an Indian buyer for a price above what has been expected by the market, while negotiations for the sale of the coking coal asset is on-going. Given the tight supply for coking coal on a global basis, it is quite possible that the asset is sold at a price above what we projected. The portfolio holds a 4.9% weight to the stock and is the largest holding in the portfolio.

Despite considerable recent press coverage on rare earth mineral availability, the United States and Europe have been remarkably insouciant about supplies of rare earth minerals so crucial to frontier technologies, from hybrid engines to mobile phones, superconductors, LED light bulbs, wind turbines and smart bombs. China’s commerce ministry has cut export quotas for these metals by 72% for the second half of this year. The sudden shortage in supply now threatens to » Read more: John Payne & Steven Miller – July 2010