Today - Thursday, October 20, 2016
- Turquoise Hill Resources (TRQ +0.3%) says its Oyu Tolgoi mine in Mongolia set an all-time quarterly record of 25M metric tons of mined material in Q3, including stripping for Phase 4 of the project, which is the next area of high-grade ore.
- TRQ says Q3 copper production fell 9.9% from Q2 as a result of lower recovery from Phase 6 ore, while gold production declined, as expected, by 47% from Q2 due to lower grades from the completion of mining Phase 2.
- TRQ says it continues to expect Oyu Tolgoi to produce 175K-195K metric tons of copper in concentrates and 255K-285K oz. of gold in concentrates for 2016.
- Brazilian federal prosecutors file homicide charges against 21 people in connection with last year's catastrophic Samarco tailings dam collapse that killed 19 people.
- The people charged include current and former officials of Vale (VALE +3.1%) and BHP Billiton (BHP +0.1%) and their Samarco joint venture, among them former Samarco CEO Ricardo Vescovi, Vale’s current iron ore director Peter Poppinga, and five Vale and BHP officials who sat on Samarco’s board in recent years.
- In addition to the criminal case, Brazilian federal prosecutors in May filed a civil lawsuit against Vale, BHP and Samarco seeking 155B reais ($49B) in damages.
- Three steel companies - Steel Dynamics , Reliance Steel and Nucor - have reported earnings since yesterday’s close, with three sharply different results.
- Steel Dynamics (STLD +2.7%) is higher after reporting Q3 earnings that more than doubled as revenues rose 7.7% Y/Y to $2.1B, and gross profit margin improved to 19.4% from 11.7% a year ago, driven by a market rebound and a drop in Chinese imports.
- Reliance Steel (RS -6%) is sinking after Q3 results missed analyst estimates and guided Q4 EPS below consensus, now seeing EPS of $0.65-$0.75 vs. $0.99 analyst consensus estimate, and expecting Q4 tons sold to fall 5%-7% Q/Q and average selling prices to drop by 1%-3% Q/Q.
- Nucor (NUE +0.2%) has recovered from earlier losses to edge into the green after Q3 results missed expectations and warning that Q4 earnings likely will decrease "notably" from Q3 because of lower margins in the steel mills segment, partly due to typical Q4 seasonality.
- U.S. Steel (X +4.9%), which reports earnings on Nov. 2, and AK Steel (AKS +4.3%), which reports on Oct. 25, are higher.
- BHP Billiton's (BHP -1.5%) nickel business, which had faced closure after failing to attract a buyer, now is spending $2M/month on improvements and making headway to extend operations through the next decade, the president of BHP's Nickel West mining and processing unit says.
- "There are signs that this year could finally be the turning point for nickel," the exec says, as nickel prices have climbed 17% and global demand rose 6.1% over the eight months through August, led by an 8% gain in China and strong gains in India and China.
- The BHP Nickel West boss also hints at a potential return to the development of the promising but as-yet unexploited Yakabindie mine, stalled for years because of its $1.1B price tag; the mine is believed to hold 350K metric tons of nickel, ~20% of annual world demand.
- Fortescue Metals (OTCQX:FSUMF) says FQ1 iron ore shipments rose 5% Y/Y to 43.8M metric tons, beating analyst estimates.
- Cash costs fell to a lower than predicted $13.55/ton in the quarter from $16.90/ton in the same period a year ago, driven by productivity and efficiency initiatives.
- Higher prices for coking coal is squeezing margins for steel mills, causing additional orders for the cheaper, lower grade iron ore such as the type Fortescue mines, CEO Nev Power says.
- BHP Billiton (NYSE:BHP) Chairman Jac Nasser says he will not seek re-election as its chairman at next year’s annual shareholder meeting.
- Nasser says he had planned to announce his retirement last year but stayed because of the Samarco tailings dam disaster.
- A global search will begin to find a replacement for Nasser, who before becoming BHP's chairman in 2010 had climbed to the top at Ford, where he became known as "Jac the Knife’’ for his cost-cutting prowess.
- BHP -0.7% premarket.
- Vale (NYSE:VALE) cuts its forecast for 2017 iron ore production to 360M-380M metric tons, below its original forecast for 380M-400M metric tons, as it continues to phase out higher-cost production.
- The world's top producer of the steel-making raw material already said in July it would not meet the original target but had not provided a new range.
- Vale says it produced 92.1M tons of iron ore during Q3, up 1.5% Y/Y and 6.1% Q/Q; the Carajás mining complex hit a new production record of 38.7M metric tons of iron ore in the quarter.
- The company maintains its production estimate for 2016, saying it would be at the lower end of a range of 340M-350M metric tons.
- Vale's Q3 nickel production totaled 76K metric tons, up 6.1% Y/Y but down 3.3% Q/Q due to scheduled maintenance work at plants in New Caledonia and Canada.
- Shares +0.8% premarket.
- Glencore (OTCPK:GLCNF) has agreed to sell its Australian coal haulage business GRail to Genesee & Wyoming (NYSE:GWR) for A$1.14B ($874M).
- The deal takes Glencore's asset sales to $4.7B in 2016 and puts the mining and trading giant on course to reduce its net debt to $16.5-17.5B by the end of the year.
- For its part, Genesee & Wyoming plans to sell 49% of GRail to funds managed by Macquarie Infrastructure & Real Assets (OTC:MCQEF).
- Still, the purchase will double the size of Genesee & Wyoming's Australian operations and is expected to boost its EBITDA by A$100M in 2017.
Wednesday, October 19, 2016
- Rio Tinto (NYSE:RIO) cuts its full-year guidance for iron ore shipments from its main Pilbara operations in Western Australia by as much as 5M metric tons, after port and rail maintenance affected shipments in the September quarter.
- Rio reports Q3 shipments from Western Australia totaled 80.9M metric tons, 2% lower than Q2 and a 5% decline from the same period a year ago, causing it to revise its 2016 shipping expectations to 325M-330M metric tons, compared to a previous target of 330M; analysts had expected a slight improvement in Q3 production to ~85M metric tons.
- The company maintains its forecast for 2017 shipments of 330M-340M tons.
- RIO -0.4% AH.
- BASF (OTCQX:BASFY) says it will gradually restart production at key petrochemical sites at its Ludwigshafen headquarters after this week's deadly fire and explosion had forced it to close them.
- BASF says the two Ludwigshafen steam crackers will gradually resume output over the next few days because alternative supply lines will circumvent the disaster area, and downstream sites dependent upon supply from the steam crackers also would resume operations.
- BASF says 24 sites including the steam crackers currently are shut or working at reduced loads as a result of the accident, which was considered the worst in the German chemical industry in more than 20 years.
- U.S. crude oil settled at 15-month highs, climbing 2.6% to $51.60/bbl, after the government reported a large and unexpected draw, compared to expectations for a build, in domestic inventories.
- In its sixth drop out of the past seven weeks, crude stocks fell 5.2M barrels in the week ended Oct. 14, vs. analyst expectations for a build of 2.7M barrels.
- Also supporting oil today was evidence of declining production in China and optimism that OPEC would secure an output cut at its meeting next month.
- The S&P energy sector is 1.6% higher, by far the biggest mover on the day, helping the broader S&P 500 to a modest 0.3% gain.
- ETFs: USO, OIL, XLE, UWTI, UCO, VDE, ERX, DWTI, OIH, SCO, XOP, BNO, DBO, ERY, DIG, DTO, USL, DUG, BGR, XES, IYE, IEO, FENY, IEZ, DNO, PXE, FIF, OLO, PXJ, RYE, SZO, NDP, GUSH, DRIP, DDG, FXN, OLEM, CRAK
- DuPont (DD +0.4%) is initiated with a Buy rating and $78 price target at Nomura, which expects strong earnings potential from the proposed combination with Dow Chemical (DOW +0.6%).
- Nomura expects the DuPont-Dow merger to generate above-trend growth in earnings and free cash flow for the next three years, which it considers "exceptional in a macro environment where growth is scarce."
- DuPont management’s integration plan through 2019, which centers on aggressive cost cuts and assets spinoffs and sales, makes the shares especially compelling, the firm says, estimating the moves should result in equity value compounding at 16% annually during 2017-19.
- Iamgold (IAG +4.6%) is upgraded to Buy from Hold with an $8 price target, raised from $7.50, at Canaccord Genuity, which says a recent tour of the company's operations showed productivity improvements and major cost savings in most areas.
- The firm says IAG is ahead of schedule in completing the secondary crusher at the Rosebel gold mine in Suriname, with additional crushing supply apparently ready to come online in November.
- Canaccord also notes that IAG shares have dropped ~35% since peaking in August and now trade at a 17% discount to peers on a price/NAV basis.
- The Democratic Republic of Congo has turned to international arbitration in a bid to force Freeport McMoRan (NYSE:FCX) and Lundin Mining (OTCPK:LUNMF) to restructure terms of any exit from one of the country’s biggest mines.
- State-owned mining company Gecamines has filed a complaint with the International Court of Arbitration in Paris, demanding that any change to the indirect ownership of the Tenke Fungurume mine be blocked unless authorized by the state miner.
- FCX plans to sell 56% of the copper and cobalt mine to China Molybdenum for $2.65B, and partner Lundin has a right of first offer on the sale; Gecamines, which owns 20% of the mine, objects to the sale because it was not informed in advance and that its rights to either pre-empt or participate in the deal had been overlooked.
- Speaking at the "Oil & Money" conference in London, Saudi Arabia oil minister Khalid Al-Falih says many non-OPEC countries (Russia?) may join in the cartel's deal to limit output. The countries, he says, are willing to not just freeze, but implement healthy cuts.
- Also in attendance at the conference, Exxon CEO Rex Tillerson says any worry of a future supply shortage is overblown, thanks to the game-changer of U.S. shale.
- Texas Tea is higher by 1.3% this morning to $50.95 per barrel. USO +1.05% premarket
- ETFs: USO, OIL, UWTI, UCO, DWTI, SCO, BNO, DBO, DTO, UGA, USL, DNO, OLO, UHN, SZO, OLEM, OILK, OILX
Tuesday, October 18, 2016
- BHP Billiton (NYSE:BHP) reports iron ore production fell 6% Y/Y to 57.6M metric tons in the three months ended Sept. 30, compared with 61.3M metric tons a year earlier, which included output from the halted Samarco joint venture.
- BHP's copper division is off to a slow start to the new fiscal year due to the recent state-wide power outage in South Australia, delivering 355K metric tons of copper vs. an expected 410K; Olympic Dam's production fell 26% Y/Y to 41K metric tons, leaving it well behind the pace required to hit its targeted 200K metric tons this financial year.
- BHP says it remains on track to meet its FY 2017 production guidance for iron ore of 265M-275M metric tons vs. 257M metric tons a year ago, although guidance for Olympic Dam is under review.
- Problems at the Cerro Colorado copper mine in Chile also is is expected to reduce production in the December quarter.
- Glencore (OTCPK:GLCNF, OTCPK:GLNCY) says it has raised the size of a bond buyback tender to $1.49B from $1.25B, as it tries to capitalize on favorable conditions to reduce its debt burden.
- Industry sources say Glencore's move will reduce the amount of debt maturing each year.
- Big miners are in a stronger position after racking up high levels of debt last year because of the commodity price crash, but likely will remain cautious and use the bond market only to strengthen their balance sheets and eventually increase dividends rather than embark on aggressive expansion plans.
- BHP Billiton (BHP +2.2%) is higher after Jefferies analysts say the company's energy business should enjoy a boost from rising oil prices and its mining assets are "underappreciated."
- A Fed rate hike could depress commodity prices in the short term, but the firm foresees a recovery in Q1 2017 from seasonal factors and a dividend increase next year.
- BHP boasts some of the highest quality assets in the global mining industry, Jefferies says, and unlike most other miners, "BHP has significant organic growth optionality as a result of the quality and scale of its resources. We estimate that there is at least $18B of potential value from long-term growth within the BHP portfolio."
- SPX Flow’s (FLOW -4.1%) Q3 preliminary earnings miss is “clearly unfavorable” and points to the most downward risk for estimates for peers Flowserve (FLS -0.2%) and Colfax (CFX -0.2%), according to analysts at William Blair.
- FLOW yesterday issued downside Q3 guidance, seeing EPS of $0.30-$0.35 vs. $0.47 analyst consensus estimate, on revenues of $467M vs. $497M consensus; prior guidance was for EPS of $0.40-$0.50 and revenue of $490M-$510M.
- Q3 orders and backlog declined sequentially by 6% and 2%, respectively, primarily reflecting lower levels of original equipment orders in energy markets and lower orders for systems in food and beverage markets, which FLOW says has caused it to reassess Q4 expectations.
- Hecla Mining (HL +4.2%) moves higher after reporting preliminary 67% Y/Y increase in Q3 silver production to more than 4.31M oz. and a 20% Y/Y rise in gold production to 52.1K oz.
- HL says the strong performance from its mines prompts it to increase its 2016 silver production estimate to 16.25M oz., highest in the company's history, from its earlier outlook for 15.75M oz.
- HL says its cash and related holdings totaled $192M at the end of Q3, $33M more than at the end of Q2, and includes $16M of insurance proceeds for the Troy Mine reclamation.
- BHP Billiton (BHP +2.2%) is rejecting claims of tax evasion in Australia by pointing to $58B in taxes and royalties paid in the country over the past decade.
- Last week, former Australian Treasurer Wayne Swan accused BHP of funneling sales through its Singapore marketing hub to help lower its tax bill by "well over" A$1B.
- “There is now no question that BHP has been gaming the system," Swan says, to which CEO Jac Nasser responds, "If we were avoiding tax, clearly we're no good at it."
- Nasser says BHP’s average tax rate over the last decade including royalties is 40%, and that the company paid $85B in taxes and royalties globally over the period.
- Forecasts are calling for much of the South and Southwest to see above-normal temps through the end of October. While natural gas inventories as of Oct. 7 were 5.4% above the five-year average, the Texas heat means if production levels don't rebound, we could go into the winter with a deficit compared to last year, says Tradition Energy's Gene McGillian.
- Temps in the northeast this week are also likely to challenge upside records, but whether there's an en masse turning back on of A/Cs remains to be seen.
- Natural gas is higher by 1.6% to $3.2970. UNG +1.1%
- ETFs: UNG, UGAZ, DGAZ, BOIL, GAZ, KOLD, UNL, DCNG
9:10 AM| 9:10 AM
- Yamana Gold (NYSE:AUY) +2.7% premarket after saying it plans to spin off its Brio Gold subsidiary as a stand-alone public company to its shareholders.
- AUY says a spinoff will allow it to "better focus on its portfolio of six, soon to be seven, producing mines in top mining jurisdictions and on its organic growth pipeline."
- Last November, AUY tried to reduce its stake in Brio through a private share placement but later suspended the plan, citing poor market conditions; this time, AUY shareholders will receive purchase rights in Brio as a dividend in-kind, which they can use to buy shares in the unit.
- BASF (OTCQX:BASFY) faces a prolonged shutdown of production units at its chemical plant complex and headquarters in Ludwigshafen, Germany, where yesterday's explosion and fire killed two employees and injured dozens.
- BASF says two steam crackers at the plant remain halted and another 20 facilities are either stopped or only partially working.
- Analysts say some production units could be down for months as investigations by the company and government agencies take place, possibly tightening European ethylene markets in 2017, which could benefit Dow Chemical (NYSE:DOW) and LyondellBasell Industries (NYSE:LYB).
- Baader Bank analyst Markus Mayer says the closing of the two steam crackers mostly will impact BASF's basic chemicals division, which makes up ~21% of sales and 30% of EBITDA; he analyst estimates that 6% of annual earnings could be directly impacted by the fire, with as much as 3% of EBITDA at risk because the shutdown may last more than a quarter.
Monday, October 17, 2016
- CF Industries' (NYSE:CF) credit rating is downgraded to junk status, cut to BB+ from BBB- with a negative outlook, by S&P, just days after Moody's also lowered its rating for the company.
- S&P expects ongoing depressed pricing in the nitrogen fertilizer sector will weaken CF's credit metrics, adding that it does not anticipate any meaningful pricing recovery in 2017.
- Global nitrogen capacity is seen continuing to climb, keeping pressure on prices into 2017, and a slump in grain futures has added to weakness in fertilizer prices.
- Newmont Mining (NEM +2.5%) is upgraded to Overweight from Equal Weight at Barclays, despite fears of a Fed rate hike that have driven gold prices lower.
- The firm says it remains comfortable with its forecast for $1,350/oz. gold over 2017 as investors move past their immediate focus on the U.S. election and the next Fed move to consider what it sees as a continued high-risk, low growth global economy.
- Barclays thus believes NEM shares look increasingly attractive ahead of potentially favorable company-specific events; over the next several months, it looks for NEM to complete the sale of Batu Hijau, recalibrate and increase its dividend payout, and affirm development of its promising expansions in Ghana.
- The firm also likes OceanaGold (OTCPK:OCANF +2.4%), which has been hit by political risks in the Philippines, and thinks the miner will reaffirm its operations in the country and begin the ramp up of its key Haile project, its first in the U.S.
- Freeport McMoRan (FCX -1.1%) is resumed with an Underperform rating and $8 price target at BofA Merrill Lynch, which says balance sheet improvements are now priced in, and a sluggish copper outlook and risks related to Indonesia operations poise a real risk.
- BofA's global commodity team sees copper as the weakest in the base metals complex against a backdrop of sluggish global growth and large mines ramping up.
- After asset sales, FCX’s Americas and Indonesia mines become even more critical, and Indonesia challenges return to the forefront, specifically affected by export restrictions that could start in 2017 and an unclear future once FCX’s license expires in 2021.
- Deutsche Bank is more optimistic, retaining a Buy rating and $12.50 price target on valuation and expected corporate cost savings now that FCX has largely exited oil and gas following the $742M sale of its onshore California assets (Briefing.com).
- Teck Resources (TCK +3.8%) jumps to a 52-week high after RBC Capital upgrades shares to Outperform from Sector Perform and raises its price target to $30 from $23, and Credit Suisse upgrades the stock to Outperform from Neutral.
- Although coking coal prices are not likely to maintain all their recent gains, RBC believes TCK will benefit from a significant increase in realized coal prices in Q4 and 2017, with zinc prices also providing additional upside potential.
- “While production should rebound as the disruptions are resolved, we expect supply to remain constrained and for the price to maintain a significant portion of recent gains,” the firm says.
- RBC’s coking coal price forecasts climb to $165/metric ton from $100 for 2017, to $150 from $95 for 2018, and to $120 from $100 for 2019-20; the firm estimates roughly half of TCK’s 2016 revenue comes from coal, and every $20 increase in coking coal prices will boost EPS by $0.67.
- Several people have been injured and some are missing after explosions at two German chemical plants owned by BASF (OTCQX:BASFY -0.7%), which forced the company to shut down some production facilities.
- BASF says there was an explosion and a fire broke during work on pipelines in the north harbor area of its Ludwigshafen site, which is the world's largest chemical complex, covering an area of 10 sq. km and employing 39K workers.
- BASF also is investigating the cause of an explosion at its Lampertheim facility, which makes additives for plastics.
- Harmony Gold (NYSE:HMY) +1.7% premarket after reporting that it had achieved a 10% Q/Q increase in gold production for the quarter ended Sept. 30, and maintaining underground grade at above 5 g/ton.
- HMY says it continued to benefit from its currency and gold hedge, which aided strong cash flows in addition to higher production.
- HMY, which achieved its production guidance of 1.1M oz. in the financial year ended June 30, has said it plans to raise production to 1.5M oz./year by 2020.
Friday, October 14, 2016
- OceanaGold (OTCPK:OCANF) has lost a claim seeking $284M in compensation from El Salvador for failing to issue permits for its El Dorado gold mining project in the country.
- The World Bank's International Center for Settlement of Investment Disputes ruled in favor of El Salvador, and the government was awarded $8M to cover legal costs for the claim.
- OceanaGold says it will evaluate the next steps for its El Salvador unit and the mine, which the company estimates holds 1.5M oz. of gold and 11.4M oz. of silver resources.
- CF Industries’ (NYSE:CF) credit rating is cut to Baa3 from Baa2 at Moody's, which also places the company on review for a further downgrade, citing deteriorating industry conditions that it expects to continue for longer than previously expected.
- Moody’s says it had anticipated that nitrogen fertilizer prices would decline as new capacity expansions at CF and other producers come on line in 2016 and 2017, but the low prices over the past several months have persisted far longer than anticipated.
- “The negative impact of weaker prices and volumes will likely cause CF’s credit metrics to well exceed...s prior estimates," the ratings agency says.
- ChemChina and Syngenta (NYSE:SYT) are prepared to offer concessions to European Union antitrust regulators to ease concerns over their proposed $43B merger, Reuters reports.
- The companies reportedly will meet European Commission officials on Monday, hoping to remove concerns but ready to propose concessions if they cannot convince the regulator to get the deal approved during a preliminary review.
- Such a proposal would trigger a 10-working day extension to the Commission's deadline of Oct. 28.
- Newmont Mining (NEM -1%) CEO Gary Goldberg, who has been saying for more than a year that he would consider buying Barrick Gold’s (ABX -1.3%) half of their jointly owned Kalgoorlie Super Pit mine in Australia at the right price, says the companies are aligned on the resource value but not on the future value of the mine.
- Goldberg tells Bloomberg that the companies are "not misaligned" on the value of the resource in the ground, "but people have different assumptions on exchange rates, and gold price, those sorts of things.”
- NEM’s agreement to operate Kalgoorlie expires in 2020, and Goldberg says the company has cut costs by 30% and raised production 20% Y/Y since taking over the mine’s operation in May 2015.
- The miners have declined to say how much they think their stakes are worth; analyst valuations have ranged from $400M to ~$1.5B.
Thursday, October 13, 2016
- Even without the latest gloomy export data from China, shares of U.S. Steel (X -5.5%) might have dropped because of falling steel prices.
- Axiom Capital’s Gordon Johnson says U.S. hot rolled coil steel prices have dropped to $496/ton, below “the psychologically [important] $500 threshold... this is not good for U.S. steel mills.”
- Also: SLX -2.9%, MT -2.3%, AKS -4.2%, STLD -1.9%, RS -1.7%, ATI -3%, WOR -1.6%.
- Iron ore heavyweights Rio Tinto (RIO -3.4%) and BHP Billiton (BHP -3.5%) are sharply lower following the news that Chinese exports fell by a more than expected 10% and imports dropped by a more than anticipated 1.9%.
- Also down substantially are the likes of Freeport McMoRan (FCX -6.5%), U.S. Steel (X -5.7%), Teck Resources (TCK -5.4%), Cliffs Natural Resources (CLF -5%), Anglo American (OTCPK:AAUKF, OTCPK:AAUKY) and Glencore (OTCPK:GLCNF, OTCPK:GLNCY).
- Also, Rio and BHP are downgraded to Sell from Neutral at Citigroup, which cites the impact of slack China commodities demand after the country's monetary stimulus and supply restrictions have driven a surge in bulk prices in 2016.
- AngloGold Ashanti’s (AU +0.9%) Obuasi mine in Ghana likely will remain under the control of illegal miners because the government is reluctant to alienate thousands of potential voters before elections, the Kofi Annan Center says.
- Ghana’s Mineral Commission last week gave the illegal miners a deadline of Oct. 10 to vacate the site, but the miners have failed to heed the order, and the Annan Center says they are unlikely to move ahead of parliamentary and presidential elections scheduled for Dec. 7.
- There is no political will to remove the miners “given the dynamics of the tight election,” an Annan director says.
Wednesday, October 12, 2016
- Alcoa (NYSE:AA) shares have tanked 14% since Tuesday morning when it announced worse than expected Q3 earnings and cut its full-year 2016 revenue targets across all areas of the business.
- In addition, Alcoa said it reached agreement to shore up its pension plan after it splits in two, requiring $150M over the next two and a half years; the move demonstrates the risk companies face if they fail to keep up with pension funding in today’s slow growth environment.
- BofA Merrill Lynch downgrades shares to Neutral from Buy with a $30 price target, cut from $33, saying the Arconic aerospace unit will continue to struggle with execution issues and delays for the next few quarters and that the company faces continued margin pressure.
- Goldman Sachs maintains a Neutral rating while lowering the price target to $28 from $30, disappointed in Alcoa's weak organic EBITDA growth in engineering products and solutions, weaker than expected performance in primary metals, and that the company did not reaffirm its earlier 2017 aerospace guidance.
- Fun fact: In the three quarters in which Alcoa has fallen more than 10% following its report, the S&P 500 traded down by 7.5%, 2.6% and 6.5% for the remainder of those three earnings seasons.
- Mine workers in Mali will go on strike for five days beginning Oct. 24 at mines belonging to gold producers including Resolute Mining (OTCPK:RMGGF) and Robex Resources (OTCPK:RSRBF), the country's biggest union says.
- The union, which represents 80% of the mining industry's workforce in the country, says it is also in dispute with Randgold Resources (NASDAQ:GOLD) over unpaid productivity bonuses.
- Mali depends on gold and cotton for 80% of its exports, and vies with Tanzania as Africa’s third biggest gold producer after South Africa and Ghana.
- Oil prices are holding the $50 level in early trading, despite uncertainty over the willingness of Russia to cut down on production levels.
- President Vladimir Putin is on record supporting a coordinated cut with OPEC, but it's unclear to some market watchers if Rosneft (OTC:RNFTF) will cooperate.
- Brent crude is up 0.67% to $52.76, while WTI crude futures are 0.41% higher at $51.00.
Tuesday, October 11, 2016
- Capital Research Global Investors earlier today disclosed ownership of nearly 140M common shares of Freeport McMoRan (NYSE:FCX), giving the investment management firm a 10.5% ownership stake and holding more than 5% of FCX shares of behalf of Investment Company of America.
- Three months earlier, Capital Research Global owned more than 114K FCX shares, or a 9.12% ownership stake.
- The stock was not helped by the news, falling 3.1% in today's trade; shares fell yesterday even following news that the company settled a 10-day work stoppage at its giant Grasberg mine in Indonesia.
- Sibanye Gold (SBGL -4.3%) considered a combination with Impala Platinum (OTCQX:IMPUY) this year but later decided a deal would be too expensive to pursue, Bloomberg reports.
- The companies’ shares have moved in opposite directions in recent months - with Impala surging 45% as SBGL slipped 14% since the beginning of June - making any stock-based deal pricier, but SBGL remains open to revisiting the deal if conditions improve in the future, according to the report.
- Impala is said to have been just one of many companies that SBGL analyzed as part of a strategy to expand mining assets in South Africa.
- Bayer (OTCPK:BAYRY -0.2%) has finalized the syndication of a $57B bridge loan to support its acquisition of Monsanto (MON +0.1%), Bloomberg reports.
- A total of 27 lenders joined the 12-month deal including European and Japanese banks, according to the report.
- Bayer is set to buy MON for $66B, with plans to fund the deal with a combination of debt, the issuance of $19B of mandatory convertible bonds and a rights offer.
- Black Stone Minerals (NYSE:BSM) says CFO Marc Carroll will step down as CFO and Senior VP effective Nov. 11, but will stay on as a consultant into 2017 to help ensure an orderly transition.
- Carroll has been CFO and Senior VP since 2008, and has held financial positions in the energy industry since 1992.
- BSM says it will name a new CFO upon Carroll’s retirement.
- Alcoa (NYSE:AA) -4.2% premarket after reporting worse than expected Q3 earnings, as lower alumina pricing and changes to aerospace delivery schedules hurt revenue.
- At the units that will form Arconic when the company splits, revenue of $3.4B fell 1% Y/Y to $3.4B, reflecting adjustments to delivery schedules in the aerospace industry and softness in North America commercial transportation and pricing pressures.
- Alcoa’s traditional metals operations including smelting, mining and refining reported revenue of $2.3B, roughly flat vs. the year-ago quarter, reflecting continued low alumina prices and the impact of curtailed and closed operations.
- Alcoa reiterated its forecast that global automotive production will rise 1%-4% in 2016 and that aircraft deliveries will be flat to 3% higher this year.
- This is the company's last quarterly report before it splits into two separate entities next month.
- OPEC's oil production rose to record highs in September, rising by 160K barrels to 33.6M bpd, underscoring the challenges the group faces as it seeks to curtail output.
- "At this stage, it is difficult to assess how the OPEC supply cut, if enforced, will affect market balances," the IEA said in its latest monthly report.
- Yesterday, WTI pushed above $51/bbl after Vladimir Putin said Russia was ready to join an output freeze, but not one world producer has willingly taken one solitary barrel off the table this fall.
- Crude futures -0.8% to $50.95/bbl.
- ETFs: USO, OIL, UWTI, UCO, DWTI, SCO, BNO, DBO, DTO, USL, DNO, OLO, SZO, OLEM, OILK, OILX
Monday, October 10, 2016
- Rio Tinto (RIO +1.7%) says the World Bank's International Finance Corporation, a partner in its $20B Simandou iron ore project in Guinea, is selling its 4.6% stake.
- The IFC's exit is the latest setback for the project to develop the world's biggest untapped iron ore reserves; in July, Rio CEO shelved the project temporarily due to a sustained slump in prices.
- Rio owns a 46.6% in the project; China's Chinalco has 41.3% and the Guinea government has 7.5%.
- Dow Chemical (DOW +0.8%) is upgraded to Buy from Neutral with a $62 price target, raised from $53, at UBS, which believes the merger with DuPont (DD +0.6%) could gain regulatory approval and that the stock is now too cheap to ignore.
- The firm already factors in $3B in potential cost savings from the deal but now substantially raises its free cash flow estimates in the materials to reflect ~20% decline in capex from pro forma 2016-18.
- UBS also revisits its sum-of-the-parts estimate based on the valuation of each spinoff company likely to come out of the combined new company to reflect a more comprehensive peer set, which it uses to benchmark vs. the S&P 500.
- Randgold Resources (GOLD -1.2%) is told by Mali's government to pay half the 46.9B CFA francs ($80M) it says the miner owes it before opening talks about the remaining sum, Reuters reports.
- The government also says the company must provide accounting information that it has so far refused to give to tax authorities.
- Mali's government recently closed the offices of companies controlled by GOLD but left three of its mines there operational.
- Goldcorp (GG -0.2%) says it reached an agreement with protesters to lift the blockade that interrupted operations for about a week at its Penasquito gold mine in Mexico.
- The company promised to renew contracts with carriers, expand and establish two health centers, improve infrastructure in the nearby city, and study the water and air to assess whether it should compensate communities for alleged contamination, according to a state government mediator.
- Operations at the mine had been temporarily suspended because of a blockade by truck drivers protesting a loss of contracts.
- Bridge financing is "committed and irrevocable" for ChemChina's $43B takeover of Syngenta (SYT -1.5%), the Swiss company says following a report on Chinese news outlet Caixin that the acquisition had hit a snag as a $15B piece of the deal's funding remains missing.
- ChemChina is borrowing heavily to buy SYT as China seeks new agricultural technology to bolster its growing population's food supply.
- Energy stocks (XLE +1.6%) open with strong gains and Brent crude oil jumps (USO +3.2%) to its highest level in a year after Russian Pres. Putin says his country is ready to join OPEC's proposed cap on oil production; Brent crude +2.8% at $53.39/bbl, WTI +2.9% at $51.26/bbl.
- “Russia is ready to join in joint measures to limit output and calls on other oil exporters to do the same,” Putin said today at the World Energy Congress in Istanbul. “We think that a freeze or even a cut in oil production is probably the only proper decision to preserve stability in the global energy market.”
- Also, Saudi Arabian energy minister Khalid al-Falih said he was optimistic that oil producers could agree to cut production by November and "it is not unthinkable" that crude prices could rise another 20% this year to $60/bbl.
- ETFs: USO, OIL, XLE, UWTI, UCO, VDE, ERX, DWTI, OIH, SCO, XOP, BNO, DBO, ERY, DIG, DTO, USL, DUG, BGR, XES, IYE, IEO, FENY, IEZ, DNO, PXE, FIF, OLO, PXJ, RYE, SZO, NDP, GUSH, DRIP, DDG, FXN, OLEM, CRAK
- Randgold Resources (NASDAQ:GOLD) says its tax dispute with Mali's government has not affected operations at its three mines in the country.
- GOLD says it is disappointed that the government escalated their long-running tax dispute to the extent of closing the company's offices in the capital city of Bamako, but its Morila, Loulo and Gounkoto mines remain in operation.
- GOLD disclosed in August that it had been professionally advised that most of the tax claims received from the Mali government in respect of its operations in that country are without merit or foundation.
- Australian miner SolGold says it rejected BHP Billiton's (NYSE:BHP) $30M offer for a 10% stake in the company plus an additional $275M proposal linked with acquiring a 70% stake in the unit managing the Cascabel copper-gold project in Ecuador.
- SolGold, which owns an 85% stake in the Cascabel project, says it prefers a $33M financing proposal from investment fund Maxit Capital and Newcrest Mining (OTCPK:NCMGF).
- SolGold's board says the BHP offer is highly conditional and implies a significant discount to SolGold's current trading price and the other financing deal.
- The crude market is "pretty much in balance," BP CEO Bob Dudley announced at the World Energy Conference, saying current prices were giving producers a little more breathing room.
- But with oil stocks still so high, the wider market sentiment may take time to change.
- On the cost of production per barrel, Dudley said BP was looking to re-base targets: "We said $60 next year; we are under $55 now. We can see our way to $53 next year."
Friday, October 7, 2016
- Barrick Gold’s (NYSE:ABX) 50% stake in the Kalgoorlie super pit gold mine has attracted interest from Kinross Gold (NYSE:KGC) and Zijin Mining (OTCPK:ZIJMF) in a sale that could fetch as much as $1B, Bloomberg reports.
- Australia's Newcrest Mining (OTCPK:NCMGF), Northern Star Resources (OTCPK:NESRF) and Evolution Mining (OTCPK:CAHPF), as well as some Chinese companies, also are considering bids, due by the end of October, according to the report.
- ABX is said to be considering ways to structure the sale, including the possibility of selling shares in the holding company that owns the mine, which would not include a right of first offer for Kalgoorlie operator and joint venture partner Newmont Mining (NYSE:NEM) and thus would allow other buyers to potentially acquire the stake.
- NEM has expressed interest in the 50% of the mine it does not already own ever since ABX announced plans to sell its stake in July.
- The metal climbed to nearly $1,270 per ounce in the minutes following this morning's jobs miss, but quickly came off of that level, and has accelerated to the downside in the past few minutes.
- It's now down 0.6% on the session at $1,245 per ounce, the weakest since the early days of June. GLD -0.8%
- Silver's moving similarly, down 0.65% to $17.23 per ounce. SLV -1.1%
- ETFs: GLD, SLV, IAU, AGQ, PSLV, PHYS, USLV, SIVR, SGOL, ZSL, UGL, DGP, GTU, UGLD, GLL, DZZ, SLVO, GLDI, DSLV, OUNZ, DGL, DBS, DGZ, DGLD, GYEN, USV, GEUR, UBG, QGLDX, DULL, SHNY
- Futures initially spike on what appeared to be soft jobs numbers - just 156K jobs added in September and the UE rate ticking up to 5.0% - but they've retreated to about where they were prior to the 8:30 ET release. SPY -0.1%.
- Bond prices likewise spiked higher, but have pulled back somewhat. The 10-year Treasury yield remains higher by one basis point to 1.75%. TLT -0.25%, TBT +0.5%
- Gold (NYSEARCA:GLD) has added a few dollars since the softish report, now up 0.8% to $1,263 per ounce.
- The dollar remains stronger on the session. UUP +0.3% premarket.
- Previously: More jobs: Unemployment rate higher as 444K return to the workforce (Oct. 7)
- Previously: Payrolls a bit soft, UE rate ticks higher (Oct. 7)
- Crude prices have topped $50 a barrel once again, as OPEC and non-OPEC oil producers head to Istanbul for an informal meeting to discuss how to implement the production deal reached in Algiers last week.
- The gathering will take place between Oct. 8-13. OPEC members committed to lowering production to between 32.5M-33M barrels a day, marking a drop of around 750K barrels from September.
- ETFs: USO, OIL, UWTI, UCO, DWTI, SCO, BNO, DBO, DTO, USL, DNO, OLO, SZO, OLEM, OILK, OILX
Thursday, October 6, 2016
- The 10-year Treasury yield is up another three basis points to 1.73%, its highest level since the start of the summer. On the short end, futures traders have priced in about a 90% chance of a rate hike between now and year-end.
- Tomorrow morning brings September's jobs report and it seems only a string of terribly weak prints would be enough to push the Fed off of its promise to raise rates this year.
- Gold is lower by another 1% to $1,255 per ounce - now off nearly $100 per ounce over the past couple of weeks. GLD -1%
- Silver today is down 2.25% to $17.30 per ounce - almost $3 per ounce less than its level of two weeks ago. SLV -2.7%
- ETFs: GLD, SLV, IAU, AGQ, PSLV, PHYS, USLV, SIVR, SGOL, ZSL, UGL, DGP, GTU, UGLD, GLL, DZZ, SLVO, GLDI, DSLV, OUNZ, DGL, DBS, DGZ, DGLD, DBP, GYEN, USV, GEUR, JJP, UBG, BLNG, QGLDX, DULL, SHNY
- Vale's (NYSE:VALE) plan to dispose of fertilizer assets remains on track despite a request last week by Brazil's state development bank to analyze the deal more carefully, Reuters reports.
- Terms of the deal, which involves the sale of ~$3.6B in assets to Mosaic (NYSE:MOS) and potentially certain other operations with Norway's Yara International (OTCPK:YARIY), are unlikely to change significantly, according to the report.
- The bank reportedly pushed back the vote on the fertilizer deal at a Vale board meeting last Thursday.
Wednesday, October 5, 2016
- Chile’s state copper miner Codelco says it is postponing $2.25B in investments aimed at maintaining production levels as it struggles with low copper prices.
- The world’s biggest copper producer seeks to develop six projects at aging mines to prevent a slump in copper output due to declining ore grades; its original proposal called for investments of $25B, but it was later cut back to ~$20B and now will total $18B.
- The company has laid off workers as part of cost cuts as it posted a $97M loss in this year's H1, during which it produced 843K tons of copper.
- ETFs: JJC, CPER, CUPM
- Negotiations are underway to resolve the week-long blockade at Goldcorp's (NYSE:GG) suspended Peñasquito gold mine in Mexico, a government mediator tells Reuters.
- GG said on Monday that it shut operations at the mine because of safety concerns from the blockade by a trucking contractor concerned about losing business.
- GG says it has a contingency plan in place that would allow mining and processing to be restarted immediately once the dispute was resolved; it maintains that the shutdown will not impact 2016 production or cost estimates.
- LSB Industries (NYSE:LXU) lowers its 2016 product sales volume outlook in some areas, including UAN, ammonia, nitric acid and LDAN/HDAN, as the result of unplanned downtime at its three primary chemical facilities during Q3.
- LSB expects the combined impact to Q3 EBITDA as a result of reduced production, lost fixed cost absorption and repair expenses related to unplanned maintenance of $25M-$26.5M.
- The company says it was able to satisfy customer commitments during the quarter by utilizing product from inventory.
- Barrick Gold (ABX +2.5%) is removed from the Conviction Buy List at Goldman Sachs but remains Buy rated with a $27 price target, as the miner is well positioned to outperform peers and continue to “flag idiosyncratic opportunities."
- While ABX has been hit by the recent drop in gold prices driven by the shift in expectations toward U.S. interest rates, Goldman expects the company to soon begin construction of some of its projects with potential for strong organic growth.
- The firm thinks believes one of the key catalysts for ABX is the sale of additional non-core assets, and it sees several divestiture candidates in ABX’s portfolio which could allow the company to achieve its $2B debt reduction goal for 2016.
- Global oil markets look to remain "very oversupplied" next year, particularly as disrupted output from Nigeria and Libya returns, Goldman Sachs' commodity research chief Jeff Currie tells Bloomberg. "We’re still seeing a lot of oil enter this market," he says, making it tough for crude to get north of $55 per barrel.
- Any supply shortage in the market is "years off," says Currie. The sort of "bull state" which could push Black Gold back into the triple digits couldn't happen for at least another three to four years, he argues.
- Previously: Goldman slashes oil price outlook (Sept. 27)
- Oil is higher by 2.3% today to $49.81 per barrel.
- ETFs: USO, OIL, UWTI, UCO, DWTI, SCO, BNO, DBO, DTO, UGA, USL, DNO, OLO, UHN, SZO, OLEM, OILX
- Vale (VALE +1.7%) CEO Murilo Ferreira's strategy of shifting away from its home state of Minas Gerais and toward new deposits in northern Brazil is helping the company outperform its peers in the stock market but is upsetting home state politicians, Bloomberg reports.
- While such local opposition normally would be of little concern for an independently run company, Vale is controlled by a holding company whose owners include state pension funds and a development bank, and the company's changes come while the new government is suffering from a recession and looking to distance itself from anyone with perceived allegiances to the previous administration.
- The northern push will allow Vale to start shipping low-cost, high-grade ore early next year from its new $14B S11D mining complex, using state-of-the-art logistics not found in Minas Gerais.
- But Ferreira is at the center of a growing national controversy over whether his efforts, which are helping Vale thrive, are hurting a region of the country that has served as the company’s cash cow.
- Sibanye Gold (SBGL -3.2%) shares begin to bounce off three-month lows after the miner suspended operations yesterday at its Cooke mine in South Africa, which produces 10%-15% of the company's gold.
- Four workers were assaulted, with two in critical condition, following violence related to illegal industrial action after a union membership verification process.
- SBGL says Cooke now has resumed normal operations after the industrial action was called off yesterday.
- Kinross Gold (KGC +1.6%) says it reached a new three-year collective labor agreement with unionized employees at its Tasiast mine in Mauritania.
- Operations at Tasiast were brought to a three-week halt in June after employees stopped work over negotiations with staff delegates on the new agreement and other items; normal operations resumed in mid-August after resolving a dispute over expatriate work permits.
- KGC says it also agreed to a "Mauritanization" plan with the government to increase the number of local workers at Tasiast.
- "The way we think abut it, gold looks to be 20-25% overvalued," Deutsche Bank Chief Global Strategist Binky Chadha tells Bloomberg. "Positioning is very, very long."
- The metal put in a big Q1 rally amid shaky global markets, but while markets have recovered - particularly in the U.S. - the price of gold has barely budged.
- In the meantime, expectations for a rate hike - and the stronger dollar that could come alongside - continue to build. Neither would be great for gold, but it's a recovery in global growth which could really be the catalyst for a sustained downward move.
- Gold's in slight bounce mode this morning, up 0.55% to $1,277 per ounce. GLD +0.4% premarket
- ETFs: GLD, IAU, PHYS, SGOL, UGL, DGP, GTU, UGLD, GLL, DZZ, GLDI, OUNZ, DGL, DGZ, DGLD, GYEN, GEUR, UBG, QGLDX
- Monsanto (NYSE:MON) -0.4% premarket after reporting better than expected FQ4 earnings and revenues, helped by higher corn seed volumes and lower expenses, but guiding FY 2017 earnings below consensus.
- MON sees FY 2017 EPS of $4.50-$4.90, vs. $4.92 analyst consensus estimate and expects free cash flow of $1.4B-$1.5B, assuming the successful sale of the Precision Planting equipment business and a meaningful first-year investment in its dicamba production facility.
- Despite strong penetration of Intacta RR2 PRO technology and record U.S. corn seed volumes, MON full-year net sales fell Y/Y due mostly to currency headwinds and price declines in agricultural productivity; MON's Seeds and Genomics segment net sales totaled $1.6B for the quarter.
- MON says its continued focus on return on innovation and cost discipline in 2016 sets up a strong base for growth in 2017, where it expects strong cash flows and growth in EPS.
- MON is being acquired by Bayer (OTCPK:BAYRY), with the deal expected to close by year-end 2017.
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