Friday, July 29, 2016
- An unapproved variety of genetically modified wheat developed by Monsanto (NYSE:MON) was discovered growing in a farm field in Washington state, the USDA says.
- Department officials say they are testing the farmer’s commercial wheat harvest for the unapproved GMO wheat but so far have found none.
- The finding is the third such incident since mid-2013, when similar genetically engineered wheat developed by MON was discovered growing on an Oregon farm, prompting some Asian countries to temporarily suspend U.S. wheat imports.
- Dow Chemical (DOW -0.1%) is upgraded to Overweight from Neutral with a $60 price target, raised from $40, at J.P. Morgan, which had downgraded the stock just last month on European economic risks.
- Q2 reports from chemical companies concerning order patterns and business conditions in July suggest that "European recessionary conditions are not a base case, and that global demand is holding up generally well," JPM analyst Jeffrey Zekauskas writes.
- The firm also believes the Dow-DuPont combination could be "a large free cash generator over a longer period of time as Dow's capital expenditures move substantially lower," and the company should benefit from significant capacity expansions and efforts to achieve cost reduction via consolidation.
- Safe Bulkers (SB -1.8%) is downgraded to Underperform from Neutral with a $1 price target at Credit Suisse, which foresees prolonged weakness in the drybulk market.
- "Management has done a tremendous job of working with its banks to refinance ~$470M which helps extend SB's runway, but at a certain point the market still needs to recover. That is the problem," analyst Gregory Lewis writes.
- The firm narrows its FY 2016 loss estimate for SB to $0.67/share from $0.70 to account for the Q2 earnings beat, but widens its 2017 loss estimate to $0.44 from $0.36 reflecting expectations for a weak market environment.
- Barrick Gold (ABX +3.6%) is reiterated as a Conviction Buy with a $27 price target at Goldman Sachs, despite narrowly missing its Q2 numbers.
- Goldman is particularly impressed with ABX's all-in sustaining costs, "signaling the cost cutting cycle is not over for the company" - the firm says the top end of the updated AISC outlook of $750-$790/oz. remains below annual guidance for the rest of its covered issues, thus giving ABX "the ability to realize industry-high cash margins."
- The firm says ABX is now well positioned to harvest free cash flow over the next few years, generating a yield above 4% consistently on spot prices.
- ABX has repaired its balance sheet over the past 24 months, the firm says as it forecasts net debt/EBITDA under 2x by year-end 2016.
- Anglo American (OTCPK:AAUKF, OTCPK:AAUKY) rebuffed informal approaches in recent months from Indian billionaire Anil Agarwal, who oversees Vedanta Ltd., the country’s biggest mining company, Bloomberg reports.
- Agarwal contacted Anglo to discuss potential ideas including a merger, but preliminary deliberations ended after Anglo concluded a deal was not feasible, according to the report.
- Anglo American is trying to mount a turnaround after the commodity price slump sent its stock plunging 75% last year, but it is the best performer in the FTSE 100 YTD, up 181%.
- ArcelorMittal (NYSE:MT) +5.2% premarket after easily beating Q2 earnings estimates and posting its highest quarterly profit since 2014 on the back of the recovery in steel prices.
- Q2 EBITDA rose 27% Y/Y to $1.77B as costs fell more than average selling prices for steel, helping expand MT's profit margin despite a 13% decline in revenue to $14.7B because of lower steel and iron ore prices.
- "We are seeing better market conditions compared with the second half of 2015 which lead us to be cautiously optimistic about the remainder of the year," CEO Executive Lakshmi Mittal says.
- MT says it plans to reconsider reinstating dividend payments when net debt drops to 2x EBITDA; the ratio was 2.5x in Q2.
- MT also says it expects a "very minimal impact" on its business from the U.K. decision to exit the European Union.
Thursday, July 28, 2016
- International Paper (NYSE:IP) says it is not seeing a rise in packaging demand in Brazil ahead of the Olympics next month, in contrast to surging demand two years ago when the country hosted the World Cup.
- Brazil is in the thick of a severe recession and hopes for an economic jolt from the Olympics, which start Aug. 5 in Rio de Janeiro.
- CEO Mark Sutton says packaging demand in China is rising ~5% YTD vs. 7%-8% growth last year, and demand in the U.S. is growing ~1.5%, at the high-end of a 1%-1.5% growth range in recent years but below 2% growth rates that were more common before the recession.
- IP earlier reported better than expected Q2 earnings on a 6.8% drop in revenue to $5.32B.
- IP reiterates that it expects to close the $2.2B acquisition of Weyerhaeuser's (NYSE:WY) pulp business in Q4.
- U.S. Steel (NYSE:X) climbed 5.5% to tally another 52-week high in today's trade, a day after issuing better than expected Q2 results that reflected a company-wide decline in unit costs.
- Argus upgrades shares to Buy from Hold with a $30 price target, expecting U.S. Steel to "benefit from margin improvement, new tariffs on imported steel, and a stable to falling dollar, and to return to profitability sooner than we previously expected."
- J.P. Morgan, which rates shares at Overweight, establishes a year-end 2017 price target of $37 as the company’s average realized prices in its flat rolled and USSE segments continue to catch up to the rally in steel market prices; the firm also says U.S. Steel’s recent notes offer greatly improved its liquidity profile.
- However, BofA Merrill thinks the stock's run-up is too much too soon, and downgrades shares to Underperform from Neutral.
- Goldcorp (NYSE:GG) has put its Los Filos gold and silver mine in Mexico up for sale, and is looking at selling its Alumbrera mine in Argentina and its Marlin operation in Guatemala, both of which are getting close to being mined out, CEO David Garofalo tells Reuters.
- Garofalo does not speculate on a sales value for any of the assets but says GG would consider getting paid in part in the shares of the acquirer, as happened in 2010 when it sold its Escobal silver deposit to Tahoe Resources.
- Shares fell 5.9% in today's trade after reporting a larger than expected Q2 loss, as production plunged by nearly a third to 613.4K oz. from 908K oz. in the year-ago period, and costs rose partly due to a maintenance shutdown and slow restart of its biggest mine.
- Cliffs Natural Resources (CLF +3.5%) rushes to a 52-week high before settling in with 3%-4% gains after reporting Q2 earnings and revenue above analyst expectations.
- Q2 U.S. iron ore sales volumes of ~4.1M metric tons came in ahead of analyst estimates, while cash production costs of ~$46/metric ton came in below expectations; CLF raises full-year guidance for U.S. iron ore sales to 18M metric from 17.5M and production to 16.5M metric tons from 16M, while maintaining its outlook for cash costs of $50-$55/metric ton.
- CLf says its net debt decreased to $2.3B from $2.6 B a year ago; it maintains full-year capex guidance of $75M.
- WTI crude could have a $39 handle in its future as its relentless July slide continues, off another 1.9% today to $41.11 per barrel. Texas Tea started the month around $50, and nearly touched $53 in early June.
- While the correction since then has torched long oil funds, bulls haven't given up, says Street One Financial's Paul Weisbruch, noting the net positions of the bulls greatly outnumbers that of the bears.
- Barron's Chris Dieterich points out the bullish triple-levered $1.2B UWTI has brought in $804M over the past month, while its bearish counterpart, the DWTI has shed $106M.
- ETFs: USO, OIL, UWTI, UCO, DWTI, SCO, BNO, DBO, DTO, UGA, USL, DNO, OLO, UHN, SZO, OLEM, OILD, OILX, OILU
- Barrick Gold (ABX -1.5%) believes it could fetch as much as $1B for its 50% stake in the Kalgoorlie Super Pit mine in Australia, Bloomberg reports.
- ABX, which announced plans to sell its stake alongside its Q2 earnings, reportedly aims to sell in the next few months, and expects to attract interest from Australian, Chinese and other global miners in addition to Newmont Mining (NEM -0.3%), which has signaled it would be wiling to buy ABX's stake at the right price.
- However, Sibanye Gold (SBGL -2.2%) says it will not make an offer for the assets of ABX's Acacia Mining unit; Reuters reported earlier this week that ABX is weighing a sale of its majority stake in Acacia and has approached several South African miners.
- Investors are taking in stride the massive provisions taken by BHP Billiton (BHP -0.6%) and Vale for last year's Samarco mine disaster, as BHP shares are slightly lower while Vale (VALE +0.3%) is slightly higher.
- BHP says it will record a provision of $1.1B-$1.3B, roughly half the estimated funding needed by the Samarco joint venture under an agreement signed with Brazilian authorities in March, while Vale says it booked a 3.7B real ($1.2B) provision.
- Vale is getting a boost from its Q2 profit report, which shows net income of $1.11B that fell 34% from $1.68B a year earlier but beating the analyst consensus estimate of $1.03B.
- Vale cut operating costs in the quarter, helping to lift profit from mining and other operations by 29% to $1.27B, its net debt fell nearly 1% Y/Y to $27.5B, and trimmed the cost of delivering iron ore.
- Vale also says it has completed 90% of the mine and iron ore processing facilities at the giant SD11 mine at its Carajas complex in Brazil's Amazon, and 92% of rail connections to its main line.
- Potash Corp. (POT -6.7%) sinks after missing Q2 earnings consensus, slashing its earnings guidance and cutting its quarterly dividend for the second time this year.
- POT now sees Q3 EPS of $0.05-$0.10 vs. $0.15 analyst consensus estimate, and projects FY 2016 EPS of $0.40-$0.55 vs. $0.63 consensus and below prior guidance of $0.60-$0.80 and $1.52 earned in 2015; the company expects lower prices for potash will weigh on results for the rest of the year, adding that even with healthy potash demand in North America and Latin America, delayed contracts in China and India weighed on shipments.
- POT plans to cut its quarterly dividend to $0.10/share in September, after earlier chopping the dividend to $0.25 from $0.38.
- POT's Q2 realized potash selling price was $154/metric ton, down from $273 in the same period a year ago, but CEO Jochen Tilk says "we believe the uncertainty that weighed on potash market sentiment is now lifting and a recovery is beginning."
- Despite the difficult conditions, POT expects global potash shipments of 58M-61M metric tons this year, which would be among the highest level ever, and believes shipments could reach 61M-64M in 2017, which would be a record year.
- Anglo American (OTCPK:AAUKF, OTCPK:AAUKY) +5.5% in London trading after reporting an H1 net profit of $698M, down 23% Y/Y but better than forecasts for a gain of just $340M.
- Soft commodity prices weighed on sales, as Anglo's H1 revenue fell 20% to $10.6B, but net debt fell to $11.7B from $12.9B at the end of 2015, mostly the result of cost cuts and volume increases.
- Anglo says it is trying to sell $3B-$4B of assets in 2016, including its iron ore, coal and nickel units, and expects net debt to fall to less than $10B by year-end.
- The De Beers diamond unit was a major driver of H1 earnings, accounting for 42% of company-wide EBIT, as a 29%Y/Y increase in volumes sold provided a boost to results.
- Dow Chemical (NYSE:DOW) +0.8% premarket after Q2 earnings easily beat analyst estimates and revenue fell less than expected, as cost cuts helped boost margins.
- CEO Andrew Liveris says Dow delivered its 15th straight quarter of earnings and margin growth despite "a variety of challenging geopolitical and market conditions."
- Dow, which is merging with DuPont (NYSE:DD), plans to cut costs by $300M this year, and achieved $90M in cuts during Q2; operating margin rose by 160 bps to 21% on an EBITDA basis.
- Sales volume grew 2%, or 4% excluding the impact of divestitures and acquisitions, "reflecting broad-based, consumer-driven demand with gains across all geographic areas" - Asia Pacific (+7%); Europe, Middle East, Africa and India (+4%); Latin America (+4%); and North America (+3%).
- Sales in plastics, Dow's largest segment, fell 2.3% Y/Y to $4.69B, as the volume gains were more than offset by pricing headwinds, mostly in hydrocarbons.
- Since crude prices hit a year-high above $52 a barrel in June they have slipped almost 20%, leaving them on the cusp of a new bear market.
- EIA data on Wednesday unexpectedly showed a 1.7M barrel rise in U.S. crude inventories versus what had been steady declines in previous weeks.
- "The improvement in oil fundamentals remains fragile and continues to feature large offsetting forces," Goldman Sachs said in a research note, but predicted oil prices to remain in the $45-$50 range until mid-2017.
- Crude futures -0.2% to $41.82/bbl.
- ETFs: USO, OIL, UWTI, UCO, DWTI, SCO, BNO, DBO, DTO, USL, DNO, OLO, SZO, OLEM, OILU, OILD, OILX
- BHP Billiton (NYSE:BHP) has doubled its provisions for last year's Samarco mine disaster and will recognize another charge in the range of $1.1B-$1.3B, when it reports financial results next month.
- This "demonstrates our support for the long-term recovery of the communities and environment affected by the Samarco tragedy," BHP's Andrew Mackenzie declared.
- In a separate statement, joint operator Vale (NYSE:VALE) said it booked a $1.2B provision.
Wednesday, July 27, 2016
- Barrick Gold (NYSE:ABX) -0.7% AH after missing Q2 earnings expectations by a penny and saying it will explore selling its 50% stake in western Australia's Kalgoorlie mine to further trim its debt.
- Newmont Mining (NYSE:NEM), ABX's joint venture partner at Kalgoorlie, said last September that it was interested in buying out the rest of the mine.
- ABX says it has reduced its total debt by $968M YTD after cutting $3.1B in 2015, and remains on track to cut debt by at least $2B this year; over the medium term, it aims to reduce total debt to below $5B from $9B currently and lower all-in sustaining costs to below $700/oz. by 2019 after reporting AISC of $782/oz. for Q2, down nearly 13% Y/Y.
- ABX says Q2 gold production fell 7.5% to 1.34M oz. and its average realized gold price rose to $1,259/oz. from $1,190 a year earlier; ABX reaffirms its full-year gold production outlook of 5M-5.5M oz. and lowers its AISC guidance to $750-$790/oz. from $760-$810/oz.
- Q2 copper output rose to 380M-430M lbs. from 370M-410M lbs. with the start of commercial production at its 50%-owned Jabal Sayid mine in Saudi Arabia.
- Alcoa (NYSE:AA) says it plans to undertake a one-for-three reverse stock split, and will hold a special meeting on Oct. 5 to seek shareholder approval.
- Alcoa expects the move will improve liquidity and facilitate trading in the stock.
- Alcoa also says it plans to effect the reverse split and resulting share count reduction to 600M from 1.8B prior to the previously announced separation of the company.
- A federal judge earlier today revived a lawsuit alleging that LyondellBasell's (NYSE:LYB) predecessor company intentionally cheated creditors out of $6.3B when it underwent a 2007 leveraged buyout, only to go bankrupt the following year.
- The judge said a bankruptcy judge erred in dismissing a bid by a trustee representing LYB's unsecured creditors to recover the money from shareholders.
- Litigation in the case persists even though Lyondell emerged from bankruptcy in 2010 and is now part of LyondellBasell Industries.
- Huntsman (NYSE:HUN) says its plans to spin off rather than sell the specialty chemical business focusing on TiO2, and create a new publicly traded company by early next year.
- After debating for many months which route to take, Huntsman CEO Peter Huntsman says a spin allows the company to have a process it can control, also noting that shareholders should benefit.
- HUN’s biggest financial drag has been its titanium dioxide plants, and is in the process of closing a plant in South Africa, but the CEO says since the titanium dioxide business is coming back to a small profit with growth potential, the business is ready to stand on its own and stop harming the value of HUN’s stock.
- HUN fell 3.1% in today's trade after reporting in-line Q2 earnings on 7% lower revenue Y/Y.
- BASF (OTCQX:BASFY) and Bayer (OTCPK:BAYRY) cut the outlook for their agrochemicals businesses, which analysts say could add to the urgency for global consolidation that has swept the industry.
- Both German companies reported Q2 earnings today that were hurt by lower demand for the herbicides and pesticides made by their crop sciences divisions, as a global slump in commodities prices hurts farmers’ incomes.
- “The agriculture market has gotten more difficult and that can certainly be a trigger for market consolidation," says NordLB analyst Thorsten Strauss, adding that cheap financing conditions also play a role.
- Bayer says full-year profit for its agrochemicals division likely will decline by a low-single-digit percentage, instead of rising as it had previously projected.
- Monsanto’s (NYSE:MON) negotiating position in Bayer's takeover offer has not become stronger, according to Commerzbank's Daniel Wendorff, noting that Bayer can still argue that the weak market environment in crop science will persist.
- EIA data unexpectedly showed a 1.7M rise in U.S. crude inventories versus what had been steady declines in previous weeks.
- The news has sent WTI crude lower by more than $1 per barrel over the past few minutes to $42.09, a price not seen since April. The XLE is the worst-performing S&P 500 sector today, down 0.7% vs. the broader index which is lower by just 0.1%.
- USO -1.8%
- ETFs: USO, OIL, UWTI, UCO, DWTI, SCO, BNO, DBO, DTO, UGA, USL, DNO, OLO, UHN, SZO, OLEM, OILD, OILX, OILU
- U.S. Steel (X +14.2%) soars to a 52-week high after Q2 earnings easily topped expectations and improved significantly from Q1, as its European segment posted its best results since Q3 2008 and its flat-rolled segment returned to profitability.
- Q2 results reflect a steep decline in unit costs, which could result in "a meaningful re-rating of medium-term earnings and FCF power," Credit Suisse’s Curt Woodworth says as he reiterates an Outperform rating and $29 price target on the shares.
- U.S. Steel’s Q2 cash costs were significantly lower than expected - U.S. flat-rolled total unit costs fell by $100/ton Y/Y - mainly due to “strong utilization rates in Europe and benefits from footprint rationalization in the U.S.,” Woodworth says, adding that he believes the lower costs are sustainable.
- Bayer (OTCPK:BAYRY) Q2 results (€M): Total Revenues: 12,003 (-1.4%); Pharmaceuticals: 3,890 (+5.5%); Consumer Health: 1,590 (-2.3%); Crop Science: 2,636 (-4.5%); Animal Health: 428 (-0.5%); Covestro: 3,185 (-6.6%).
- Net Income: 1,380 (+18.6%); EPS: 1.67 (+19.3%); CF Ops: 1,982 (+1.2%).
- Key Pharmaceutical Product Sales: Xarelto: 703 (+28.1%); Eylea: 418 (+38.9%); Kogenate/Kovaltry: 280 (-6.4%); Mirena product family: 258 (-4.4%); Nexavar: 221 (-4.3%).
- 2016 Guidance: Total Revenues: €46B - 47B from >€47B; Life Sciences: ~€35B; Pharmaceuticals: >€16B from ~€16B; Consumer Health: ~€6B from >€6B; Crop Science: flat vs. 2015 from low-single-digit increase; Animal Health: slightly above 2015; Covestro: sales decline.
Tuesday, July 26, 2016
- U.S. Steel (NYSE:X) +4.1% AH after reporting a narrower than expected Q2 loss and saying it expects FY 2016 EPS of ~$0.34.
- The company expects ~$850M in adjusted EBITDA for the full year, compared with its April outlook of nearly $400M, saying "the significant improvements we have made to our earnings power through our Carnegie Way transformation will become more apparent as market prices recover from the very low levels at the end of 2015."
- U.S. Steel says pricing increases contributed to a strong Q2, and expects more price improvement in H2 of the year; its European segment posted its best results in nearly eight years, its flat-rolled segment returned to profitability, and an improving cost structure helped margins.
- Steel names AK Steel (NYSE:AKS), Nucor (NYSE:NUE), Steel Dynamics (NASDAQ:STLD) and Reliant Steel (NYSE:RS) have reported better than consensus earnings this quarter on the heels of surging steel prices.
- Sherritt International (OTCPK:SHERF) CEO David Pathe says he is confident the miner and its partners in the Ambatovy nickel mine in Madagascar will reach agreement soon with lenders to defer repaying project loans for several years.
- Last month, Sherritt and its partners in the mining venture, Japan's Sumitomo and Korea Resources Corp., won a deferral until Aug. 5 to repay $90M plus interest to the lenders; they owe the lenders $1.6B, which is supposed to be repaid from cash produced by the mine, but the mine is producing at a loss with nickel prices down nearly 80% percent since 2007.
- Although nickel prices have rallied in recent weeks, Sherritt says more than 60% of global output is losing money on a simple cash margin basis - a figure that would be even higher once capital spending and other costs are added in - showing that the sector is still in the midst of a severe crisis.
- AK Steel (AKS +13.5%) surges after Q2 earnings easily beat analyst estimates, and adjusted EBITDA of $99.3M, or 6.7% of sales, more than doubled from last year's adjusted EBITDA of $47.6M, or 2.8% of sales.
- AKS says Q2 shipments fell 14% Y/Y to 1.55M tons from 1.81M tons a year ago, as its decision to reduce exposure to the commodity carbon steel spot market resulted in a 48% decline in shipments to the distributors and converters markets.
- However, shipments of higher value coated products, which are sold mostly to the automotive market, rose to 53% of total shipments in Q2, up from 45% a year ago.
- AKS says Q2 selling prices improved 2.8% Y/Y to $957/ton, vs. $931/ton a year earlier; total Q2 operating expenses fell 15%.
- The favorable results are boosting U.S. Steel (X +8.9%) ahead of the latter's Q2 earnings report after the close today, perhaps with an assist from Allegheny Tech's (ATI +19%) better than expected Q2 results.
- Barrick Gold (ABX +2.6%) is considering a sale of its 64% stake in African unit Acacia Mining and has approached several South African miners, Reuters reports.
- ABX has reached out to South African miners Harmony Gold (HMY +4.4%), Sibanye Gold (SBGL +5.3%), AngloGold Ashanti (AU +2.6%), Randgold Resources (GOLD +1.3%) and Gold Fields (GFI +5.4%), as well as some Australian and North American miners, according to the report.
- Acacia owns three producing gold mines in Tanzania, as well as exploration projects in the country and other parts of Africa.
- Three of the world's top five miners will need to step up asset sales in this year's H2 to meet a $14B full-year target as they race to cut debt, Reuters reports.
- Glencore (OTCPK:GLCNF, OTCPK:GLNCY), Anglo American (OTCPK:AAUKF, OTCPK:AAUKY) and Vale (NYSE:VALE) have $5.4B from asset sales, far short of their target, delaying efforts to reduce debt and improved their credit ratings.
- Asset sales lost steam amid the H1 rebound in commodity prices, as iron ore and coal prices rallied ~30% and copper prices rose ~7%, easing the sense of urgency for sellers while bidders waited for the rallies to fizzle, but most analysts and investors expect prices to fall during H2, as iron ore, coal and copper markets remain oversupplied.
- Vale, which hopes to sell up to $5B worth of assets this year, may come under more pressure as so far it has only fetched $269M from the sale of three iron ore carriers, while Glencore and Anglo appear to be more on track toward their respective goals of $4B-$5B and $3B in asset sales this year.
- BHP Billiton (NYSE:BHP) and Rio Tinto (NYSE:RIO) are considered well placed to buy assets, with interest in copper, but both have been surprised at the high prices that copper assets have fetched so far.
- Banro (NYSEMKT:BAA) says CFO Kevin Jennings will resign after accepting a position at another company; he will remain with BAA "for the next couple of months" to ensure a smooth transition to a new CFO.
- Jennings has served as Banro CFO since September 2014 after spending 20 years in corporate finance and senior management positions with global mining companies including Barrick Gold and Xstrata.
- Freeport McMoRan (NYSE:FCX) -5.5% premarket after posting a wider than expected Q2 loss and a 15% Y/Y drop in revenues to $3.33B, which also missed estimates.
- FCX says its Q2 copper production rose 16% Y/Y to 1.13B recoverable lbs., while average realized prices fell 20% to $2.18/lb.
- Q2 operating cash flows totaled $874M, and FCX foresees full-year operating cash flows at ~$4.5B vs. prior guidance of $4.8B.
- FCX says Q2 capex totaled $833M, and lowers its outlook FY 2016 capex to $3.1B vs. prior guidance of $3.3B.
- Seeking to pare down debt, FCX says it has unveiled more than $4B YTD in asset sales, and plans to launch an at-the-market offering of up to $1.5B of common stock; FCX's consolidated debt totaled $19.3B at the end of Q2 vs. $20.3B at the end of Q1.
- Hecla Mining (NYSE:HL) withdraws its takeover bid for Dolly Varden Silver (OTCPK:DOLLF) after provincial regulators in Ontario and British Columbia allowed the junior miner to proceed with a private placement equity offering.
- Shortly after HL launched its ~$10M bid, Dolly Varden announced a proposed $6M private placement that would be equal to ~43% of the company’s market value.
- After regulators recently changed Canadian takeover rules to reduce the effectiveness of poison pills, which had been a common takeover defense, Dolly Varden’s response to HL’s hostile bid has raised question about whether private placements could emerge as a common defense in Canada.
- Chinese iron ore miners are calling for an anti-dumping investigation into imports from top suppliers in Australia and Brazil.
- "Vale (NYSE:VALE), Rio Tinto (NYSE:RIO) and BHP Billiton (NYSE:BHP), which have dominated global iron ore trade, have defied the market and are still expanding despite prices being low since their strategy is to use low-priced dumping to crowd out higher-cost miners," according to the Metallurgical Miners' Association of China.
- Imports accounted for ~85% of China's total iron ore consumption, driving down capacity utilization at domestic iron ore miners and causing losses and shutdowns, the group says.
- But an analyst at Julius Baer notes that many of China's iron ore mines are vertically integrated into steel mills, thus "this looks like a tit-for-tat response from the steel mills who were feeling international pressure from steel anti-dumping investigations and tariffs."
Monday, July 25, 2016
- Klondex Mines (NYSEMKT:KLDX) -4.1% AH after agreeing to acquire the Hollister mine and the Esmeralda mine and ore milling complex in Nevada from Waterton Splitter for a combination of cash, shares, warrants and notes.
- To fund the deal, KLDX agrees to a bought deal private placement of 20M subscription receipts at C$5 each, for C$100M in aggregate proceeds.
- Southern Copper (SCCO -0.4%) is slightly lower after reporting Q2 earnings of $0.29/share, $0.02 above the $0.27 analyst consensus estimate, on revenues of $1.34B, in-line with $1.33B consensus.
- SCCO says its Q2 copper mine production rose 26% Y/Y to 225.8K metric tons from 179.1K tons in the year-ago quarter, mostly the result of a 78% increase in production at the Buenavista mine in Mexico, which increased production by more than 49K tons.
- SCCO says the result pushed H1 production to a record of 447.5K metric tons, and now expects 913.5K tons for the full year.
- This just in: Oil's at its lowest price of the summer, down 2% today to $43.39 per barrel, its weakest since early May. USO -2.2%
- Alongside, the energy sector's (XLE -2.1%) decline is pacing a 0.5% retreat in the S&P 500. The Oil Services ETF (OIH -2.1%)
- ETFs: XLE, VDE, ERX, OIH, XOP, ERY, DIG, DUG, BGR, IYE, IEO, FENY, PXE, FIF, PXJ, RYE, NDP, GUSH, DRIP, FXN, DDG, CRAK, SOP, UOP, NANR
Sunday, July 24, 2016
- Libya's hopes to boost crude exports have been dealt a blow after the head of the National Oil Corporation objected to a deal between the government and local guards involving payments to reopen key ports.
- "It sets a terrible precedent and will encourage anybody who can muster a militia to shut down a pipeline, an oilfield, or a port, to see what they can extort," Mustafa Sanalla said in a letter to U.N. Libya envoy Martin Kobler.
- Armed factions and security threats have already helped slash Libya oil output to less than a quarter of the 1.6M bpd seen before the 2011 uprising against Muammar Gaddafi.
- ETFs: USO, OIL, UWTI, UCO, DWTI, SCO, BNO, DBO, DTO, USL, DNO, OLO, SZO, OLEM, OILU, OILD, OILX
Friday, July 22, 2016
- Anglo American's (OTCPK:AAUKF, OTCPK:AAUKY) has put its De Beers diamond unit has put its Snap Lake mine in Canada's Northwest Territories up for sale after suspending operations at the mine last December, Reuters reports.
- Snap Lake, which has not made money since production began in 2008, produced 1.2M carats last year and initially was planned to operate until 2028.
- De Beers last month received approval to flood the mine tunnels, reducing maintenance costs, under a revised suspension plan, and the company says it may proceed with the flooding plan in Q4 if no buyer is found.
- The U.S. oil rig count rose by 14 to 371, according to Baker-Hughes. The gas rig count fell by one to 88, and miscellaneous rigs rose by two, so the total U.S. rig count gained 15 to 462.
- Oil continues its steady July slide, down 1.9% in today's session to $43.89 per barrel. Black gold has dipped about $10 per barrel since an early June peak.
- USO -1.5%
- Eldorado Gold (EGO -3.1%) is downgraded to Neutral from Outperform with a $5.25 price target, cut from $7, at Credit Suisse, citing geopolitical headwinds in Turkey.
- Turkey had been considered a relatively stable operating base for EGO and comprises most of the company's production outside Greece, but recent events in the country have led to a perception of higher political risk which Credit Suisse says will make share outperformance unlikely until greater visibility is achieved.
- The firm notes that EGO is trading at 0.88x price/NAV, a 0.31x discount to peers at 1.19x, in-line with its average 0.30x discount over the last 12 months.
- Monsanto (NYSE:MON) says the European Commission has granted import approval for Roundup Ready 2 Xtend soybeans, allowing for the import and food/feed use of the new genetically modified soybean into the EU.
- The Commission's OK comes after EU member states had failed to reach an agreement on whether to license the product.
- The ruling removes uncertainty for MON, which already had sold the seeds to farmers this year, and for grain companies, some of which had refused to purchase the soybeans from farmers without approval from the EU.
- MON +0.8% premarket.
- Bidders for Anglo American’s (OTCPK:AAUKF, OTCPK:AAUKY) Australian metallurgical coal assets, including mines in Queensland that could fetch up to $1.5B, are in talks with banks for acquisition financing, Bloomberg reports.
- Coronado Coal and AMCI Capital are competing for Anglo’s Moranbah and Grosvenor mines with BHP Billiton (NYSE:BHP), which bid through its coal joint venture with Mitsubishi, according to the report, which adds that a group led by Glencore (OTCPK:GLCNF, OTCPK:GLNCY) has dropped out.
- Anglo CEO Mark Cutifani wants to raise $3B-$4B from asset sales to reduce debt and refocus the company as a miner of diamonds, platinum and copper.
- Syngenta (NYSE:SYT) says talks with regulatory authorities to win approval for its takeover by ChemChina have been "constructive" and the goal remains to complete the deal by year-end.
- CEO Erik Fyrwald says talks are ongoing with the Committee on Foreign Investment in the U.S., which is seen as the sticking point in the regulatory passage of the deal since the transaction has implications for U.S. food security.
- The comments come as SYT's H1 sales fell 7% Y/Y to $7.1B and EBITDA fell 12% Y/Y to $1.77B, worse than the ~5% decline forecast by analysts, as its profit margin fell to 24.9% from 26.2%.
- AngloGold Ashanti (NYSE:AU) says it expects to swing to a net profit in H1, thanks to higher gold prices, cost controls and weaker local currencies that have lowered its operating costs on a dollar-denominated basis.
- In a trading update, AU says it expects to report H1 headline earnings, which strips out exceptional items, of $87M-$99M vs. a $128M loss in the year-ago period.
- AU says its net earnings will benefit from a higher gold price, which rose 1.5% Y/Y to $1,222/oz. in H1, and weaker operating currencies in South Africa, Brazil, Australia and Argentina; it also was helped by continuing to control costs across its portfolio of 17 operations in nine countries.
- The combination helped offset a 7.1% Y/Y decline in H1 gold production to 1.75M oz.
Thursday, July 21, 2016
- Nucor (NUE -3.1%) is lower even after reporting Q2 EPS of $0.73, ahead of analyst consensus; NUE had pre-annouced a month ago for EPS of $0.65-$0.70 vs. $0.56 consensus at the time.
- Even with a Y/Y revenue decline to a below consensus $4.25B, NUE said the overall operating rate at its steel mills rose 10% in the quarter from the previous year, as the cost of energy and scrap materials dropped.
- NUE says average Q2 sales price per ton rose 9% Y/Y but fell 9% Y/Y, but the company expects another strong Q/Q improvement in its earnings for Q3.
- NUE announced yesterday that it will pay $29M to purchase Joy Global's steel plate mill in Longview, Tex.
- Newmont Mining (NEM +2.4%), which posted an impressive Q2 earnings beat yesterday, says it will review its dividend at an October board meeting, an indication that it may boost its payout later this year.
- "It's certainly worth noting that if today's gold price is maintained, our gold price-linked dividend would double in the third quarter," CFO Laurie Brlas said during today's earnings conference call.
- CEO Gary Goldberg said the board will weigh the use of cash for debt reduction, project investment and shareholder returns, but that raising the dividend is preferable to share buybacks.
- Slide show
- Agnico Eagle Mines (AEM +1.9%) says a group of armed men stormed its La India mine in northern Mexico yesterday, stealing a cache of silver and gold.
- AEM’s Mexican subsidiary does not provide an estimate of the value of the theft, but says the mine in the Sonora state - known for drug violence - is operating normally.
- The La India mine has a lifespan of seven years and is expected to produce 100K oz. of gold in 2016.
- Vale (NYSE:VALE) +1.3% premarket after announcing Q2 iron ore production of 86.8M metric tons, higher than the 77.5M metric tons in Q1 and slightly above analyst expectations but below the record 89.3M tons produced in the year-ago quarter.
- Vale’s expansion goals in the face of a global supply glut appear highly attainable as the company plans to ramp up H2 production at the S11D mine in Carajás, the industry's biggest development project.
- Carajás achieved a Q2 production record of 36.5M metric tons, up 15.5% Y/Y, mostly due to the increase in the overall equipment efficiency of the truck fleet and the ramp-up of the N4WS and N5S extension pits.
Wednesday, July 20, 2016
- Newmont Mining (NYSE:NEM) +2% AH after easily exceeding analyst expectations for Q2 earnings and revenues, benefiting from higher gold production and lower costs.
- NEM says it produced 1.3M oz. of attributable gold and 38K metric tons of copper during Q2, compared to 1.2M oz. of gold and 42K metric tons of copper in the prior-year quarter.
- All-in sustaining costs for gold improved to $876/oz. in Q2 from $909/oz. in the prior-year quarter, and copper AISC improved to $1.53/lb. vs. $1.61/lb. a year ago.
- NEM issues a new gold production forecast, excluding the Batu Hijau mine in Indonesia, which it is selling: the miner now expects output of 4.7M-5M oz. in 2016, rising to 4.9M-5.4M oz. in 2017 and remain stable at 4.5M-5M oz. through 2020.
- NEM also lowers its AISC guidance to $870-$930/oz. for 2016 from a previous outlook for $880-$940; 2017 guidance remains at $850-$950/oz.
- Nucor (NUE -2.8%) is downgraded to Neutral from Buy with a $56 price target at BofA Merrill Lynch, citing a more cautious view on H2 market conditions, fuller valuation and cautious comments on long products from Steel Dynamics (STLD -1.5%).
- The downgrade comes as NUE is scheduled to report Q2 results tomorrow, when the firm believes investors will focus on how much spare capacity the company might be able to contribute to a relatively tight sheet market after reportedly operating at 105% of capacity at its sheet mills.
- BofA adds that NUE has more long products exposure than STLD at ~39% of 2015 sales, and has been growing volumes in its fabricated segment.
- "Today, our customers are thinking about growing their business again rather than being focused on survival," said Halliburton CEO David Lesar, as the company reported its Q2.
- The notion of coordinating supply cuts with OPEC is dead, Russia's energy minister told Reuters.
- The Saudi Aramco CEO told reporters low oil prices won't stop his company from drilling more or nix plans to sell shares.
- The above suggests those hoping for a "great rebalancing" of the oil market to bail out their long bets might have to wait a little longer as the war for market share goes on, writes Liam Denning.
- Particularly interesting were the Halliburton comments calling a bottom in shale drilling despite oil still being south of $50 per barrel.
- ETFs: USO, OIL, UWTI, UCO, DWTI, SCO, BNO, DBO, DTO, UGA, USL, DNO, OLO, UHN, SZO, OLEM, OILX
- Stillwater Mining (SWC -0.1%) is well positioned heading into Q2 earnings, FBR Capital says, as conservative expectations could be lifted on continued cost improvements as well as positive progress reports on Blitz and the company's non-operating assets, which often are overlooked; the firm lifts its price target on SWC's Buy-rated shares to $17 from $13.
- FBR expects Newmont Mining (NEM -4.7%) to report an in-line quarter vs. consensus, and raises its price target price to $39 from $31, believing the shares are fairly valued at current levels on expectations of steady gold prices from current levels and the company’s forward outlook.
- The firm foresees a modest Q2 beat for Freeport McMoRan (FCX -1.2%) but is cautious, citing increased concerns about the pace of progress in the negotiations with the Indonesian government; FBR raises its price target to $11 from $9.
- Teck Resources (TCK -1.4%) has pulled back from its recent strong stock performance, and FBR thinks the company needs to post strong results to regain its momentum.
- The firm rates NEM, FCX and TCK at Market Perform.
- DuPont (DD +0.6%) and Dow Chemical (DOW +0.9%) shareholders approve the merger of the two largest U.S. chemical companies at their respective special meetings, a key step in closing the deal before year-end.
- The next hurdle is winning antitrust clearance: The U.S. Department of Justice in February issued a second request for information on the merger, the companies notified China’s competition agency of the deal in May, and they filed with the European Commission last month.
- Within two years, the companies plan to split into three separate publicly traded companies focused on agriculture, material science and specialty products.
- "The producers have sold the hell out of this rally," says Stephen Schork. "The companies that did survive, they've been hedging." Laredo Petroleum, for example, said it hedged more than 2M barrels of 2017 output in July. Drillers overall have boosted bets on falling prices by 29% this year, according to Bloomberg.
- Drillers are also taking advantage of oil's rally to raise capital - they're selling stock at record speed, raising more than $16B so far this year. “The producers know full well that the oil market is not out of the woods yet," says Again Capital's John Kilduff.
- To review, the price of oil fell 38% in H2 of 2015, and 49% in H2 of 2014.
- Meanwhile, gasoline (NYSEARCA:UGA) inventories are so swollen that at least five sea tankers coming into NYC were turned away over the past few weeks. According to the EIA, stockpiles of 240.1M barrels as of July 8 were an all-time seasonal high.
- Anglo American (OTCPK:AAUKF, OTCPK:AAUKY) is down more than 7% in London trading after cutting its projected output for iron ore and copper for the current year and reporting mixed production trends in Q2.
- Anglo warns that it will produce less copper than expected this year and next as severe snowfall at its Los Bronces mine in Chile has slowed efforts to access higher-grade ore; copper production at the mine fell 22% Y/Y during Q2, while overall copper production fell 8% to 144.2K tons.
- The miner now sees 2016 copper production of 570K-600K tons from 600K-630K tons previously and 2017 copper output of 570K-600K tons from 590K-620K tons previously.
- Anglo says total Q2 iron ore production rose 1.6% Y/Y to 12.4M tons, due to the ramp-up of its Brazilian Minas Rio project which helped offset a 15% drop in output from Kumba Iron Ore in South Africa, where heavy rain and restructuring plans took a toll.
- Anglo says Q2 diamond output fell 19% to 6.4M carats after it cut production last year in response to tough market conditions.
- One of Bayer's (OTCPK:BAYRY) top 20 shareholders says it may make sense to launch a hostile takeover bid for Monsanto (NYSE:MON) after the U.S. company rejected a sweetened $125/share offer yesterday.
- "Such a move would be seen as hostile but could put pressure on Monsanto's management to grant Bayer access to its books," Markus Manns of Union Investment tells WSJ; Union is Bayer's 14th largest investor with a 0.7% stake.
- Manns says Bayer has room to improve its offer to a maximum of $135/share, but a higher number would make an acquisition too much of a financial risk; he does not agree with fellow investor Henderson Global Investors, which is urging Bayer to put the deal to a shareholder vote.
- Shares of both companies are in the red after the miners outlined several challenges in the country.
- BHP Billiton's (NYSE:BHP) fiscal 2016 iron ore guidance missed expectations by 3M tons because of its Samarco dam disaster.
- Anglo American (OTCPK:AAUKY) cut full year guidance for Brazilian iron ore production after posting mixed Q2 results.
Tuesday, July 19, 2016
- BHP Billiton (NYSE:BHP) says it exceeded FY 2016 production guidance for petroleum, copper and metallurgical coal, but fell short of its iron ore production target.
- BHP's share of its iron ore exports totaled 227M metric tons, below its revised guidance of 229M tons and an initial target of 237M tons that was scuttled following the Samarco dam spill in Brazil.
- Total output at the Western Australia iron ore operations in the Pilbara was 257M metric tons, 2% above last year's record but short of guidance for 260M metric tons, with expectations for 265M-275M tons next year.
- BHP expects FY 2017 attributable iron ore production to rise to 228M-237M metric tons, excluding production from Samarco; the company says it cannot yet provide an update on Samarco's potential financial impacts on H2 2016 results.
- BHP's petroleum division produced 240M boe during FY 2016, above guidance of 237M boe, and copper production of 1.58M metric tons also beat guidance.
- Randgold Resources (NASDAQ:GOLD) says the development of its underground mine at the Kibali gold mining complex in the Democratic Republic of Congo is on track.
- CEO Mark Bristow says Kibali will "remain a work in progress" until the underground mining component is completed near the end of 2017, but management is making progress in dealing with transitional challenges.
- In the meantime, Bristow says the company also is focusing on opening two high-grade satellite pits in 2016 and 2017, which he says will greatly improve operational flexibility.
- Newmont Mining (NEM -0.5%) is the only gold miner worthy of a Buy rating, according to Deutsche Bank analysts Jorge Beristain and Chris Terry, citing balance sheet flexibility, production growth and attractive valuation.
- In its Q2 earnings preview for the sector, the firm forecasts aggregate EBITDA among major precious metals miners to remain largely flat Q/Q at ~$2.5B as higher gold and silver prices were offset by ~3% lower production, particularly for Goldcorp (GG -1.8%).
- Beristain and Terry suggest avoiding GG, Franco-Nevada (FNV -0.3%) and Coeur Mining (CDE -2.8%), relative to the sector, but note that valuations generally are rising.
- Steel Dynamics (STLD -4.9%) sinks despite beating Q2 earnings expectations and coming in a penny better than the upper end of its prior EPS guidance of $0.53-$0.57.
- STLD says import levels are down 25% YTD but is seeing activity picking up a bit as prices have risen, although it does not expect imports to return to levels in late 2014-early 2015 which exploded the U.S. market.
- STLD says there has been "steady underlying demand" for flat-rolled steel products and expects improved flat-rolled metal spreads in Q3, but "aside from the construction sector, long product steel demand is generally challenged, and selling values are under pressure from excess domestic production capability."
- STLD also says that while it anticipates metal spread expansion for its long products group in Q3, lower shipments related to customers buying ahead could offset related margin gain.
- Turquoise Hill Resources' (TRQ -1.1%) Oyu Tolgoi mine in Mongolia reports a decline in copper and gold production, which the company says was expected, "reflecting reduced mining in Phase 2 of the open pit, which included higher grades of both copper and gold."
- TRQ says it also expects H2 gold production to be lower as it mines areas that have reduced grades.
- TRQ's Q2 copper production fell 10.3% Y/Y to 51.7K metric tons from 55.3K in the year-ago quarter, while Q2 gold production tumbled 52% to 70K oz. from 238K oz.; however, silver production rose to 391K oz. vs. 297K oz. a year ago.
- TRQ reaffirms full-year copper production guidance of 175K-195K metric tons and gold production guidance of 255K-285K oz.
- Gold Fields (NYSE:GFI) +2.3% premarket after saying it expects H1 earnings to surge, citing the recovery in the gold price and lower operating costs helped by a weaker rand.
- GFI says it expects to report on Aug. 18 that its basic EPS for the period was US$0.14, up from zero in its prior interim period, with headline EPS of US$0.16 vs. US$0.01 in the prior-year period.
- GFI expects H1 attributable gold equivalent production of 1.04M oz., +0.7% Y/Y, with all-in sustaining costs of production at $992/oz., -8.4% Y/Y; for Q2, GFI sees attributable equivalent production of 529K oz., +2.7% Y/Y, with AISC of $1,023/oz., +6.4% Y/Y.
- Monsanto (NYSE:MON) -1.6% premarket after rejecting Bayer’s revised takeover proposal is "financially inadequate and insufficient to ensure deal certainty."
- However, MON says it "remains open to continued and constructive conversations with Bayer and other parties" to assess whether a deal can be fulfilled in the best interest of its shareowners.
- The rejection should not come as a surprise, since most observers have believed MON would require a better offer than $125/share before agreeing to a sale (I, II, III).
- Bayer (OTCPK:BAYRY) investor Henderson Global Investors is demanding a vote on the company's $64B-plus proposed takeover of Monsanto (NYSE:MON), marking the strongest opposition from the investor base against the deal.
- Henderson, one of Bayer's 20 largest investors with a 0.7% stake, says the bid for MON represents "a major departure from a strategy of focus and integration of existing acquisitions" that Bayer had consistently communicated to the market for a number of years.
- Henderson also says the deal terms reflect a very high valuation multiple and the deal could constrain investment in the pharma division.
- Bayer has repeatedly said it does not need shareholder approval for the deal, which would make any dissenting move more complicated.
- Novartis (NYSE:NVS) -1% premarket after lowering its full year earnings guidance on plans to increase spending on its drug Entresto.
- Ericsson (NASDAQ:ERIC) reversed earlier losses as investors digested the firm's plans to cut costs by twice as much as previously thought.
- Rio Tinto (NYSE:RIO) -5% premarket after reporting that Q2 iron-ore production rose a weaker-than-expected 8%.
Monday, July 18, 2016
- Rio Tinto (NYSE:RIO) reports that it shipped 80.9M metric tons of iron ore from Western Australia's Pilbara region during Q2, up 8% Y/Y but short of analyst expectations of 83.3M tons, and shipped a below consensus 82.2M tons when including its Canadian business.
- Rio already was behind pace after shipping 80.8M metric tons from its global operations during Q1, and the miner now may be hard pressed to meet its full year goal of shipping 350M tons from its global operations in 2016.
- Rio also says it expects to make an investment decision on the Silvergrass project during H2; the mine is required for Rio to achieve its long-term goal of shipping 360M tons from the Pilbara, but the company says the real value of Silvergrass will be its good iron grades.
- The NYSE says it is delisting General Steel (NYSE:GSI), effective immediately; shares are halted.
- GSI had previously been deemed below compliance with the NYSE's continued listing standard requiring listed companies to maintain at least $50M in stockholders equity or total market capitalization on a 30 trading day average basis.
- The NYSE says it is delisting GSI because the company did not regain compliance with the listing standard within 18 months and is delayed in its SEC filings for FY 2015 and Q1 2016.
- Monsanto (NYSE:MON) is negotiating terms on a confidentiality agreement with Bayer (OTCPK:BAYRY) that would allow extensive due diligence, a move that may indicate some progress as a result of Bayer's latest takeover offer, Reuters reports.
- Access to confidential information has been a major sticking point in Bayer's negotiations with MON ever since it extended its first takeover offer in May.
- MON would still require Bayer to raise its offer further in order to agree to a sale, according to the report.
- Bayer last week improved its offer to $125/share in cash from $122 and offered a $1.5B reverse antitrust breakup fee.
- Glencore (OTCPK:GLCNF, OTCPK:GLNCY) is downgraded to Neutral from Outperform at Credit Suisse, which says shares have topped out after nearly doubling YTD.
- The firm says the main reason for its gloomier outlook is copper, which accounts for ~40% of Glencore’s mining earnings, saying it "remain(s) negative on copper due to subdued demand and healthy mine supply growth, and we believe this will cap upside from here."
- While Glencore's successful delivery of its main earnings and debt reduction targets together with latent capacity growth in copper and zinc still provides upside potential over the medium term, the firm expects weak copper prices will lead to a slower than planned return of copper volumes.
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