Monday's Commodity News To Trade On

by: Matthew Smith


It appears that BHP Billiton (NYSE:BHP) may be cooling its plans to enter the potash industry as a producer, according to Reuters. If you remember, BHP made a bid for Potash Corporation of Saskatchewan (NYSE:POT) shortly after the depths of the financial crisis had been reached. Potash turned down the offer, and BHP continued developing the project they purchased earlier from Athabasca Potash. The Jansen Project is supposed to be the next large-scale, low-cost potash mine in the prolific Athabasca.

The company likes to buy projects which allow it to be the low cost producer and thus under price the competition. This news is bullish for a number of reasons, first that it keeps this production off of the market for a few years should the story be true and secondly that it means BHP may return to the table to purchase its way into the market via buying an actual producer. Watch Potash, Mosaic (NYSE:MOS) and Agrium (NYSE:AGU) on this news.

Oil and Gas

In news that is a bit more stale, it appears that many companies with significant exposure to the Utica are raising cash via share offerings to hold out for the best prices on those assets. We have recently seen Gulfport Energy (NASDAQ:GPOR), Rexx Energy (NASDAQ:REXX) and EVEP Partners, LP (NASDAQ:EVEP) (the most recent with the announcement right after the close on Wednesday and then an overallotment announced on Friday - see here) do secondaries.

Gulfport used its cash to beef up its oil sands play, which should be a good long-term move for the company while preserving the credit line to pay for its share of future drilling on the Utica assets. Note we still suspect that it will joint venture the acreage and thus not carry the burden of 100% of the costs. Rexx is using the cash it raised across its plays, but the company is highly levered to the price of natural gas, so it will need to focus that money on oil and natural gas liquids targets moving forward with gas prices where they are. Finally, we are brought to EV Energy Partners, which caught us by surprise. Our thinking is that this offering is to shore up the balance sheet as the company states in order to pull off a nearly 100% tax-free exchange of assets when it sells off some of its Utica acreage.

Generally financings are bad, but Gulfport has bounced back strongly since announcing its financing; Rexx is hanging in there; it is too early to tell with EVEP at this point. Investors do appear to think that the Utica will pan out, so the most recent financing by EVEP, if history is any guide, may just be a decent entry point for investors.

Precious Metals

Gold and Silver could once again be tradeable on the basis of inflationary pressures building and economic growth (in silver's case), if one is to believe that the Europeans are done making deals and the Greece situation is finally settled. Gold and silver are up in early trading overseas - it should be interesting to watch in the coming months in euro terms, as they have started their first quantitative easing. Many traders are discussing currency trades such as shorting the euro to go long dollar-denominated currencies (i.e., U.S., Aussie and Canadian currencies), but gold purchased in euros offers some exposure to this same trade.

Disclosure: I am long GPOR, EVEP.