Today - Wednesday, August 24, 2016
- Glencore's (OTCPK:GLCNF) H1 adjusted net profit slumped two thirds to $300M and missed consensus of $318M.
- Adjusted underlying profit (EBITDA) fell 13% to $4B.
- Still, Glencore has cut debt to $23.6B by divesting assets and today said that it's agreed to sell future output from an Australian gold and copper mine for $670M to Evolution Mining (OTCPK:CAHPF).
- Glencore also set a new target of reduce debt to $16.5-17.5B by the end of year vs a previous aim of $17-18B.
- Shares are -2.6% in London. (PR)
Tuesday, August 23, 2016
- Iron ore is one of the hot commodities of 2016, but Citigroup analysts are the latest to foresee prices cooling off soon as supply rises and steel demand weakens.
- Citi notes that iron ore has become the best YTD performer among major commodities even though its market fundamentals have provided little support to its YTD price hikes, as the market instead has followed a few rallies of Chinese steel product prices, which are expected to lose momentum in Q4.
- Citi sees iron ore averaging $51/metric ton in Q4 and just $45 in 2017 under its base case scenario, vs. $61.75/ton currently and a YTD average of $53.64, up more than 40% in 2016 after three years of losses.
- Morgan Stanley recently issued an even more bearish outlook for iron ore, predicting prices as low as $35 in H2.
- Relevant tickers include VALE, BHP, RIO, OTCQX:FSUMF, CLF.
- The U.S. Senate Judiciary Committee announces plans to hold a hearing in late September to discuss the mergers of Dow Chemical (NYSE:DOW) and DuPont (NYSE:DD) as well as ChemChina's purchase of Syngenta (NYSE:SYT).
- Committee chair Sen. Grassley of Iowa has expressed concern that the deals would result in farmers paying more for seeds, pesticides and herbicides and reduce the companies' incentives to innovate.
- The committee has no formal say over whether the deals may go forward; the Justice Department is reviewing the Dow-DuPont merger, while the FTC is looking at ChemChina's purchase of Syngenta.
- Rusoro Mining (OTCPK:RMLFF) says a World Bank arbitration tribunal has ordered Venezuela to pay it more than $1.2B, ruling that the government unlawfully expropriating the company’s gold mines in 2011.
- Shares more than doubled in today's trade, trading for as much as C$0.32, their highest level since Venezuela's asset seizure.
- It is far from clear whether Venezuela intends to comply with the order; while Gold Reserve said this month that it had reached a settlement on a similar case, Venezuela has said it would fight an order that it pay $1.4B to Crystallex International over similar claims.
- BHP Billiton (BHP +3.9%) is upgraded to Buy from Hold with a $33 price target, up from $28, at Jefferies, amid a "clearly improved" environment for mining fundamentals as well as company-specific factors.
- Mining fundamentals have improved with demand stabilizing, a decline in supply, strengthening of balance sheets backed by free cash flow and asset sales, and inexpensive valuations, Jefferies says.
- BHP is well positioned relative to most other miners, the firm says, as "a low cost producer with low geopolitical and operational risk and a relatively strong balance sheet."
- Jefferies also says BHP's free cash flow is growing, with the company delivering significant reductions in unit costs and lowering its capex spending.
- A U.S. district judge late yesterday dismissed lawsuits in which San Jose, Oakland and Berkeley and other California cities sought to force Monsanto (MON +2.8%) to help pay for reducing PCB contamination to San Francisco Bay.
- The judge said the cities did not show that MON's sale many decades ago of products containing PCBs caused a public nuisance that damaged their property rights; the cities claimed that the PCBs polluted stormwater flowing into San Francisco Bay, forcing them to spend money to lower the discharge and comply with environmental laws.
- MON was the only U.S. maker of PCBs, which were outlawed by the U.S. government in 1979 and have been linked to cancer, immune system difficulties and other health problems.
- Westlake Chemical (WLK +3.1%) is upgraded to Outperform from Sector Perform with a $59 price target, raised from $47, at RBC, which expects the stock will continue to march higher ahead of the pending $2.4B acquisition of vinyl maker Axiall.
- RBC believes the AXLL deal creates a new way to play chlor-alkali and that management will take full advantage of synergies the deal presents.
- The firm also notes WLK's financial prudence and strong balance sheet, and that while rising polyethylene prices are a near-term positive for the company, WLK is "the way to play" for investors who anticipate lower-for-longer ethane prices.
- CF Industries (CF +4.1%) shoots higher after UBS upgrades shares to Buy from Neutral with a $28 price target, saying the company will return to positive free cash flow in 2017 as capex declines to maintenance levels and nitrogen prices stabilize.
- UBS calls CF "a near pure-play on U.S. shale gas-based nitrogen fertilizers," whose margins are based on an advantage to high coal-based producers in China, much of which are reported to be operating below cash manufacturing costs; the firm says these high cost producers are closing capacity as new low-cost capacity ramps, and no new capacity is underway for startup after 2017.
- The firm also believes CF's dividend is secure because of 1.7x free cash flow coverage in 2017, while the market has priced in an apparent risk to the dividend.
- Oil prices are lower again as the market digests reports indicating that Iraq is preparing to ramp up its export levels.
- Iraq oil production rose sharply in July to hit 3.71M barrels a day.
- Strong oil output out of China and a new ceasefire with militants in Nigeria are also on the eyes of traders.
- WTI crude oil futures -3.03% to $47.05/bbl. Brent crude -1.14% to $48.60/bbl.
- ETFs: XLE, VDE, ERX, OIH, XOP, ERY, DIG, DUG, BGR, XES, IYE, IEO, FENY, IEZ, PXE, FIF, PXJ, RYE, NDP, GUSH, DRIP, DDG, FXN, CRAK, SOP, UOP, NANR.
Monday, August 22, 2016
- Citigroup initiated coverage on the steel sector (NYSEARCA:SLX) today with a positive outlook, with Buy ratings on U.S. Steel (NYSE:X) and Steel Dynamics (NASDAQ:STLD), and Neutral ratings for AK Steel (NYSE:AKS), Nucor (NYSE:NUE) and Commercial Metals (NYSE:CMC).
- Citi sees prices for hot-rolled coil holding the $550-$600/ton range into 2017, a relatively more bullish view than the consensus which expects prices to fall quickly in H2 given relatively high price premiums vs. imports, but the firm finds support from idlings, imports and inventory.
- The firm considers US Steel the top pick for near-term upside in the sector, saying the company currently has “the highest operating leverage, highest short interest and most upside to consensus estimates."
- Citi likes STLD as one of the lowest-cost operators in the U.S. and notes that the company has been generating mill EBITDA margins five percent above the industry average over the last five-year and 10-year period.
- DRDGOLD (DRD -16.5%) plunges after revealing its H1 trading statement, a requirement of South African-listed companies if they determine that their financial results will differ by at least 20% from the previous period.
- While the miner sees FY 2016 non-GAAP headline EPS of $0.122-$0.133, or a respective Y/Y increase of 23% to 34%, it forecasts regular EPS of $0.14-$0.153, a respective decline of 12%-20% from the prior-year period.
- Even after the drop, DRD is +320% YTD, due to the stronger gold price as well as a stronger U.S. dollar; as DRD sells gold in dollars but pays expenses in rand, its cash flow has gained the rand has dropped 9% YTD vs. the dollar.
- China Investment Corp. is leading a Chinese investor group in talks for an iron ore streaming deal worth as much as $9B with Brazil’s Vale (VALE -2.8%), Bloomberg reports.
- Some Chinese companies and Japanese trading houses have also held discussions with Vale about possible deals, including acquiring a minority stake in Brazilian iron ore assets owned by the company, according to the report.
- A streaming deal would allow China to profit from a recovery in commodity prices without bearing all the operational risk associated with owning mines, while Vale would get immediate cash while staying in charge of valuable assets.
- Glencore’s (OTCPK:GLCNF, OTCPK:GLNCY) decision to cut zinc output to fight a rout in prices last year has been vindicated as the metal has rallied in 2016, Morgan Stanley analysts say, while also holding out the possibility that the company may order restarts.
- Zinc prices “may be supported/lifted, if China’s steel-production rate remains at around 800 million tons per year into 2017. Conversely, the most likely short-term price cap for zinc is the reactivation of Glencore’s dormant mining capability,” the firm says.
- Zinc has climbed 42% YTD as Glencore's Q2 zinc production fell 33% Y/Y, and Stanley still considers the metal its top pick among commodities.
- Rio Tinto (RIO -1.4%) says it will shut the Bunder diamond mine in India by the end of the year, as the miner seeks to cut costs and conserve cash.
- Development of the mine has been slowed by delays in environmental approvals that would allow the clearing of a forested area important to tiger and other wildlife habitats.
- Rio had hoped to bring Bunder into production as early as 2019, and the project was pegged as one of just four new diamond mines to enter production in the next decade.
- ArcelorMittal's (NYSE:MT) South African unit agrees to pay a 1.5B rand ($110M) fine for colluding to fix steel prices, the country's antitrust authority says.
- The South African unit admitted guilt on allegations of fixing prices, allocating customers and sharing commercially sensitive information on long-steel products, and admitted to fixing scrap-metal prices.
- The unit, which has not made a profit in half a decade, also agreed to 4.6B rand in capital spending over five years as part of the settlement.
- Crude oil sees the most volatility of any market this morning, with WTI -2.6% at ~$47.80/bbl as analysts doubt upcoming producer talks would cure the oversupply problem and say August's 20%-plus crude rally looks overblown.
- Oil prices of $50/bbl or higher are unsustainable because of the ongoing production and storage overhang in fuel markets, and likely will experience another short-term dip in the coming weeks, Barclays says.
- "Positioning data seems to confirm our view that the latest oil bounce is more technical and positioning-oriented than fundamental. In fact, new buyers have been mostly absent the past few months," Morgan Stanley says.
- Adding to the outlook of plentiful supplies, the U.S. oil rig count rose by 10 last week and has climbed 28% from its May trough.
- Other factors include reports that Iraq is increasing oil exports by ~150K bbl/day (5%) as a pipeline dispute is being resolved, increased exports out of China, a stronger dollar, and the possible exhaustion of short-covering.
- ETFs: USO, OIL, XLE, UWTI, UCO, VDE, ERX, DWTI, OIH, SCO, XOP, BNO, DBO, ERY, DIG, DTO, USL, DUG, BGR, IYE, IEO, FENY, DNO, PXE, FIF, DBE, OLO, PXJ, RYE, SZO, NDP, GUSH, DRIP, DDG, RJN, FXN, OLEM, CRAK
Thursday, August 18, 2016
- WTI crude oil is higher by 2.8% today to $48.09 per barrel, putting the price of black gold nearly 22% above the $39.51 it touched on August 2.
- Chatter about some some of production freeze out of OPEC make for a good excuse, but Iran's plans to raise its output back up to pre-sanction levels calls that into question.
- Also helping the bulls: Hurricane season is on the way and the U.S. National Oceanic and Atmospheric Administration recently boosted its expectations for storm activity.
- USO +2.6%
- ETFs: USO, OIL, UWTI, UCO, DWTI, SCO, BNO, DBO, DTO, UGA, USL, DNO, OLO, UHN, SZO, OLEM, OILD, OILX, OILU
- Brent crude oil futures have settled back after edging over $50 for the first time in over a month earlier today.
- All eyes are on the implications of a potential meeting between OPEC and other key producers in Algeria next month.
- Societe Generale chief commodities analyst Michael Wittner says any sign of rebalancing will be taken by the market as a bullish sign.
- "We see additional technical resistance scaling in at $50.72 ahead of prior highs at $51.92 to $52.29," advises Citi Futures analyst Tim Evans.
- WTI crude oil futures +0.60% to $47.07/bbl. Brent crude -0.08% to $49.81/bbl.
- ETFs: XLE, VDE, ERX, OIH, XOP, ERY, DIG, DUG, BGR, XES, IYE, IEO, FENY, IEZ, PXE, FIF, PXJ, RYE, NDP, GUSH, DRIP, DDG, FXN, CRAK, SOP, UOP, NANR.
- The Titribi property is located about 70 km southwest of Medellin, and came to NovaCopper (NYSEMKT:NCQ) about a year ago as part of a larger deal with Sunward Resources.
- It's being sold to Brazil Resources in exchange for 5M common shares of BRI and 1M warrants. The value of the stock is about C$13.1M based on the 20-day moving average of BRI on the TSX.
- Closing is expected on or about Sept. 1.
- For many years, General Electric (NYSE:GE) assumed coal's future was challenged by environmental and cost issues, and therefore promoted natural gas as an alternative.
- Now, as demand rises in India and Southeast Asia, GE is bullish about coal again, WSJ reports.
- GE leaders say they can reap decades of profits from existing coal power plants, installing upgrades that will come in response to slowly tightening emissions rules and utilities' desire to boost output, and are poised to build coal facilities in developing economies.
- ETFs: KOL, TONS
Wednesday, August 17, 2016
- Kinross Gold (KGC -1.8%) has added two names to its C-suite as Chief Operating Officer Warwick Morley-Jepson decides to depart for new opportunities.
- The company named lauren Roberts its new COO, effective Jan. 1. He's a 25-year industry veteran who's been with Kinross since 2004, most recently as senior VP of Corporate Development.
- It also named Paul Tomory to a newly created position, chief technical officer. He'll have oversight of Project Development and "technical aspects of our operations, including Strategic Business Planning and Continuous Improvement, Technical Services (encompassing Mine Planning, Geology and Metallurgy), Supply Chain and Energy."
- Thinly traded nano cap Marrone Bio Innovations (MBII +36%) continues its earnings release-stoked up move on an impressive 14x surge in volume. Shares have jumped 93% since August 9 when the company released its Q2 results.
- Product revenues were up 60% while total revenues were up over 50%. Loss per share and cash utilization improved as well.
- Also on August 9, the company announced an exclusive strategic partnership with Albaugh, LLC to develop and market one of Marrone's microbial biopesticides for seed treatment applications. Financial terms were not disclosed.
- Crude oil prices are falling back slightly in early trading after the recent run of successive gains. Some trepidation from Iran officials over attending an OPEC meeting and capping production is on the radar of traders.
- WTI crude oil futures -0.41% to $46.39/bbl. Brent crude -0.22% to $49.14/bbl.
- BHP Billiton (NYSE:BHP) may end up mothballing its Canadian potash project by the end of this decade after completing two shafts at a cost of about $2.6B.
- The shafts in Saskatchewan are now at a depth of about 600 meters, with a further 300 to 400 meters to go, CEO Andrew Mackenzie told analysts and investors in London.
- Upon their completion in 2018 or 2019, the board will decide whether to build the mine based on market conditions.
Tuesday, August 16, 2016
- BHP Billiton (NYSE:BHP) may end up mothballing its Jansen potash project in Saskatchewan by the end of the decade upon completion of two shafts likely costing ~$2.6B, CEO Andrew Mackenzie says in his most pessimistic comments yet about a project the company has described as the world’s best undeveloped potash resource.
- The project is ~60% finished with ~$200M left to spend in FY 2017, and the two shafts are now at a depth of ~600 meters (1,970 ft.), with a further 300-400 meters to go; upon completion in 2018 or 2019, BHP's board will decide whether to build the mine, Mackenzie says.
- Macquarie analysts have calculated that Jansen’s development requires a long-term potash price of more than $400/ton to achieve an acceptable rate of return and probably more than $500/ton to compete for capital against BHP’s other growth options.
- Bayer (OTCPK:BAYRY) is considering making a hostile bid for Monsanto (MON +0.9%) after the next few weeks show whether the two sides can reach a deal, Handelsblatt reports, citing sources close to Bayer's negotiating team.
- If a friendly deal fails to materialize, Bayer is prepared to appeal directly to MON shareholders, over the heads of MON's board, according to the report, which cites sources close to the company.
- MON rejected Bayer's last offer that valued the company at ~$64B, and some observers expect CEO Hugh Grant to reject any offer of less than $67B-$69B.
- Iron ore prices may tumble back to $40/metric ton during H2 as the approach of winter in China typically slows steel demand and output, Morgan Stanley analysts predict.
- Iron ore has soared this year, snapping three years of declines, as stimulus and a credit-fueled property boom in China lifted demand, but Stanley notes that iron ore prices have on average dropped in September, October and November over the past 10 years, and it also expects ore prices to become increasingly capped during H2 by ongoing supply growth.
- The firm maintains its forecasts for iron ore to average $45/ton this quarter and $35 in Q4, with a base-case H2 estimate of $40.
- Relevant tickers include VALE, BHP, RIO, CLF
- Despite the "worst loss in its history" headline, BHP Billiton (NYSE:BHP) +3.2% premarket to nine-month highs after announcing a full-year dividend of $0.30, which the company says is more than the minimum under its new payout policy.
- The payout is down nearly 80% from last year's $1.24, but BHP says it is sweetening its dividend by $0.06 during H2 on top of the minimum $0.08 payout, and the new dividend is covered by free cash flow generated in the current period.
- CEO Andrew Mackenzie says BHP's free cash flows could double from $3.4B in FY 2016 to $7B next year, but that appears to be contingent upon sustaining the current uncertain commodity price rally; net debt stayed flat at ~$26B, but BHP expects net debt to fall in FY 2017.
- Investors seem to accept Mackenzie's somewhat optimistic tone taken in the earnings conference call: "There is some sense that prices have stopped falling as opposed to being in freefall, [which] means that we can continue to drive down costs and open up a margin which instead of only sharing with our customers, we can share with investment in our company and with our investors."
- Crude prices are edging closer to $46 a barrel, fueled by talk of producers taking action to prop up the market, although some investors cashed in during Asian hours on the 16% rally since early August.
- Led by top exporter Saudi Arabia, OPEC has re-launched a debate about potentially capping soaring output in an effort to reduce a global overhang in production and inventories of crude oil and refined fuel products.
- BHP Billiton (NYSE:BHP) swung to its worst-ever annual loss of $6.4B and cut its final dividend by 77% as the world's largest miner by market value got hammered by a bad bet on shale, a dam disaster in Brazil and a commodities slump.
- "While commodity prices are expected to remain low and volatile in the short to medium term, we are confident in the long-term outlook, particularly oil and copper," Chief Executive Andrew Mackenzie said in a statement.
- Even excluding $7.7B in writedowns and charges, underlying profit slumped 81% to $1.2B during the quarter from $6.4B a year ago.
- George Soros has become more bearish on equity markets, nearly doubling his short bet against the S&P 500, following similar moves by Jeffrey Gundlach, Carl Icahn and David Tepper.
- According to his 13F filing, Soros now holds put options on roughly 4M shares in SPY. He also lowered his gold holdings in Q2, slashing his stake in GLD by a quarter and almost liquidating his position in Barrick Gold (NYSE:ABX).
Monday, August 15, 2016
- Compass Minerals (NYSE:CMP) agrees to acquire the remaining 65% of Brazilian specialty plant nutrition company Produquímica Indústria e Comércio for $460M-$480M (including debt), based on expected 2016 performance.
- Produquímica makes and distributes various specialty plant nutrition products and specialty chemicals, primarily for the water treatment industry and for use in other industrial processes in Brazil; CMP purchased 35% of the company in December 2015.
- CMP expects the transaction to add $0.12-$0.15 to FY 2016 diluted EPS.
- Anglo American (OTCPK:AAUKF, OTCPK:AAUKY) is under pressure pressure from major shareholder South Africa’s Public Investment Corporation to break up the company, according to a weekend report from The Times.
- Anglo’s platinum business likely will not be part of a selloff, as CEO Mark Cutifani wants mining the metal to continue to be one of the company’s three core businesses along with copper and diamonds, but the PIC reportedly could seek to roll its 30% stake in rival platinum miner Lonmin (OTC:LNMIF) into a new company based on other businesses Anglo is more open to selling.
- The report notes that the South African government often has expressed the view that it would like to see a nationally owned mining company emerge at some point, and that Cutifani himself had said he would be ready to look at the possibility of bundling any non-core businesses together for sale.
- U.S. Steel (X +5.2%) is reiterated with an Overweight rating and a $37 price target at J.P. Morgan, which says recent supply cuts are “significant and structural,” not temporary.
- J.P. Morgan's Michael Gambardella says domestic producer capacity cuts have reduced supply by 12%, while the elimination of Chinese imports represents another 6-7% cut in domestic supply.
- The firm says market sentiment remains negative despite the structural changes, and short interest in U.S. Steel stock remains very high at 31% as of July.
- Glencore (OTCPK:GLCNF, OTCPK:GLNCY) says it will start arbitration proceedings against Bolivia over the nationalization of three of its operations in the country dating back to 2007.
- Glencore says it was forced into action after nearly nine years of negotiations with the government had not resulted in any compensation for the nationalization.
- Bolivian Pres. Morales has raised taxes and seized mines, oil refineries and power companies since taking power in 2006.
- AngloGold Ashanti (NYSE:AU) says it will consider resuming dividend payments next year after last paying a dividend in H1 2013, as higher bullion prices, weaker currencies in countries where it operates and lower interest payments boost free cash flow
- AU's board will meet to discuss what to do with excess cash toward the end of this year and announce any new policy early in 2017, CEO Srinivasan Venkatakrishnan says.
- The comments came as AU reported adjusted H1 earnings of $159M, more than double vs. the same period last year, with gold production of 1.745M oz., in line with AU's full-year guidance range of 3.6M-3.8M oz., and all-in sustaining costs of $911/oz., a $13 Y/Y improvement.
- AU says cash flow tripled to $108M at the end of H1 while net debt fell 32% to $2.1B.
- AU -3.2% premarket.
Friday, August 12, 2016
- Anglo American’s (OTCPK:AAUKF, OTCPK:AAUKY) bid to sell its Barro Alto nickel mine in Brazil has stalled because bids from potential suitors fell short of the valuation sought by the company, Bloomberg reports.
- The mine has attracted interest from companies including Glencore (OTCPK:GLCNF, OTCPK:GLNCY), X2 Resources and Sherritt International (OTCPK:SHERF), according to the report.
- Anglo wants to raise more than $3B from asset sales as part of a plan to cut debt below $10B by the end of the year.
- The BHP Billiton (NYSE:BHP) and Vale (NYSE:VALE) Samarco joint venture is asking lenders to halt repayment demands until mining operations can resume following last year's tailings dam collapse, Bloomberg reports.
- BHP and Vale approved funding for cleanup and compensation programs at Samarco and have extended credit to support operations, but the JV's debt is not guaranteed by its owners, and a standstill with banks would be a first step in restructuring the debt as Samarco works on restarting operations.
- The mine was the world’s second-largest producer of iron ore pellets before the spill, generating more than $2B in annual profit; after earlier flagging a 2016 restart, the mine may not get new permits until late next year or 2018 amid regulatory scrutiny into the incident that was described as Brazil’s worst-ever environmental disaster.
- Teck Resources (TCK -4%) tumbles as RBC downgrades shares to Sector Perform from Outperform, mostly on valuation, but the firm says it would be buyers if shares slip below $17.
- RBC says it likes TCK's long-term prospects, particularly its solid operating performance, high quality asset base, exposure to zinc and the increase in cash flow expected from the Fort Hills oil sands project beginning in 2018.
- But the firm also says strong price gains since May in the coal market likely will cool off, and that zinc prices will not be able to drive the stock much higher on their own since TCK gets just 19% of its revenues from the metal.
- ThyssenKrupp (OTCPK:TYEKF) reports a 34% Y/Y drop in FQ3 net profit to €130M, weighed by drops in global steel and material prices, but the result came in slightly ahead of analyst estimates.
- FQ3 sales fell 12% Y/Y to €9.87B, while EBIT tumbled 18% to €441M, but the results were a significant improvement over with the previous quarter, prompting the company to reiterate its full-year guidance for EBIT to be "at least" €1.4B.
- FQ3 adjusted EBIT was up nearly 10% to €100M at the unit which supplies the auto industry with parts such as electrical engineering systems, while rising 6.6% to €225M at the elevator division.
- CFO Guido Kerkhoff says the outcome of steel merger talks with India's Tata would not be affected by the Brexit vote although it would delay the process.
- B2Gold (NYSEMKT:BTG) -2.6% premarket after announcing a $100M equity distribution agreement for the issuance and sale of common shares.
- BTG plans to use the proceeds to fund ongoing general corporate expenditures, discretionary capital programs, accelerated exploration at the Fekola Project in Mali and exploration and feasibility work at the Kiaka Project in Burkina Faso.
Thursday, August 11, 2016
- Glencore (OTCPK:GLCNF, OTCPK:GLNCY) has abandoned plans to sell its Lomas Bayas copper mine in Chile that was expected to fetch ~$500M, Reuters reports.
- Glencore was not able to achieve a high enough price, and the company now believes it is in a stronger footing than when it started the sale process last year and is no longer compelled to make a sale at any cost, according to the report.
- Lomas Bayas produces ~75K metric tons/year of copper cathode.
- Silver Standard Resources (SSRI +12.2%) rallies to a new 52-week high after Q2 earnings and revenues beat analyst expectations thanks to strong cost reduction efforts.
- SSRI reduces cash cost guidance for its Marigold mine in Nevada to $650-$700/oz. of gold sold after producing more than 47K oz. during Q2 at cash costs of $663/oz., and at the Pirquitas mine in Argentina to $9-$10/oz. of silver after producing 2.5M oz. during Q2 at $8.87/oz.; the company also raises its annual production guidance of Pirquitas for the second time this year to 9M-10N oz. of silver.
- SSRI says Q2 Marigold production was lower Q/Q because of planned ore stacking at higher elevations on the leach pads, but expects higher Q3 and Q4 production vs. H1 as the new leach pad is commissioned and the full impact of additional haul trucks is realized.
- Barrick Gold's (ABX +0.8%) goal of cutting its total debt load to ~US$5B from $9B (net debt $6.6B) at the end of Q2 is within reach, analysts at TD Securities say.
- Applying potential proceeds from an ABX sale of its 50% non-operating interest in Australia's Kalgoorlie mine and its 64% stake in Acacia Mining, the firm estimates ABX could reduce its net debt to ~$4B.
- TD also notes that ABX without Kalgoorlie and Acacia still would produce 4M-4.5M oz./year. which should dispel investor worries about a potential production cliff; the firm reiterates its Buy rating and $26 price target on the shares.
- Silver Wheaton (SLW +2.9%) shares run to their highest levels in three years after posting in-line Q2 earnings on a 29% Y/Y revenue increase to a better than expected $212M.
- SLW raises its one-year and long-term gold production guidance, now seeing attributable gold production of 305K oz., up from its previous outlook for 265K oz., and average attributable gold production over the next five years including 2016 of 330K oz./year, up from 260K oz.
- Silver production for 2016 is seen at 32M oz., down from previous guidance of 32.8M oz. due to lower than expected production from the San Dimas and Peñasquito mines; SLW sees annual silver production during 2016-20 remaining unchanged at 31M oz./year.
- SLW says H1 attributable silver sales volumes hit a record 14.7M oz., up 31% Y/Y, while gold sales also reached a record 136K oz. for H1, up 52% Y/Y.
- Operating cash flows for Q1 and H1 were a respective $134M and $248M, 23% and 25% higher than the respective periods during 2015.
- North American potash producers trade in mixed fashion after Germany's K+S (OTCQX:KPLUY) warned that it expects significantly weaker results for the year, particularly due to its Potash and Magnesium Products unit.
- K+S, Europe’s biggest potash producer, forecasts full-year 2016 EBITDA of €500M-€600M, compared with €1.1B last year.
- K+S’s plan to cut costs and focus on growing the specialty fertilizer and salt businesses has not compensated for falling potash prices, and the company also has been hurt with by worse than expected factory outages and a decline in North American demand for de-icing products made with salt.
- At midday: POT -0.2%, MOS -0.1%, AGU +0.3%, IPI +0.7%.
- Crude production is falling behind demand to the tune of 1M barrels per day in Q3, says the IEA. "Our balances show essentially no oversupply during the second half of the year."
- It's a combination of big production cuts by non-OPEC producers and healthy demand.
- In other news, Saudi Arabia energy minister Khalid al-Falih says market forces are already doing their work, but his country is ready to do what it can to further support prices.
- WTI crude is higher by 3.6% to $43.22 per barrel. USO +3.95%
- ETFs: USO, OIL, UWTI, UCO, DWTI, SCO, BNO, DBO, DTO, UGA, USL, DNO, OLO, UHN, SZO, OLEM, OILD, OILX, OILU
- European antitrust regulators open an in-depth investigation into the proposed merger of Dow Chemical (DOW -0.2%) and DuPont (DD +0.1%), saying the deal may reduce competition in crop protection, seeds and some petrochemicals, as well as stifle innovation.
- Commitments submitted by the companies last month to address some of the EU regulator’s concerns were “insufficient to clearly dismiss its serious doubts as to the transaction’s compatibility” with EU merger rules, the European Commission says.
- In a joint statement, Dow and DuPont say they expected a thorough review and are working with relevant regulators, while continuing to believe that the merger is good for customers and consumers.
- Newmont Mining (NEM +0.1%) CEO Gary Goldberg tells WSJ that the company likely will review its dividend policy at the end of the year, and perhaps double its Q3 payout to $0.05/share if gold prices stay high.
- NEM has cut its net debt over the past three years nearly in half to ~$2.7B, and Goldberg believes the company will reach its internal debt targets two years ahead of schedule, citing better than expected gold prices as the Fed will hold off from tightening monetary policy and other central banks continue to ease.
- Citigroup recently issued a Buy rating on NEM, saying the company has the highest potential among the North American gold producers to return more capital to shareholders via dividends or buybacks.
- Cliffs Natural Resources (NYSE:CLF) -2.8% premarket after announcing late yesterday that it priced its public offering of ~44.4M common shares at $6.75 each to raise $300M; CLF also grants the underwriters an option to purchase up to 6.7M additional shares.
- Premarket volume was 3.5M shares, making CLF the most active issue trading ahead of the open.
- CLF fell 8.2% yesterday after revealing its plans for the share offering late Tuesday.
- Glencore (OTCPK:GLNCY) reported a significant fall in output for most of its products in the first half of the year after closing mines in response to a rout in prices.
- Production of copper, which made up most of its revenue, dropped 4% while coal saw a 14% decline and zinc a 31% tumble.
- Glencore also increased its full-year estimate for copper output due to strong performance from its Collahuasi mine and trimmed its coal prediction.
- The world will consume less oil next year than previously thought due to a "dimmer macroeconomic outlook," the IEA said in its monthly oil market report.
- The energy watchdog expects global oil demand to grow by 1.2M barrels per day in 2017, a decrease of 100K bpd compared with last month's forecast.
- Adding to the recent pressure on crude prices, EIA data on Wednesday showed a U.S. crude inventory build of 1.1M barrels last week, while Saudi Arabia said its output hit a record high in July.
- Crude futures -1.3% to $41.15/bbl.
- ETFs: USO, OIL, UWTI, UCO, DWTI, SCO, BNO, DBO, DTO, USL, DNO, OLO, SZO, OLEM, OILU, OILD, OILX
- Appetite for gold is showing no signs of abating, as figures from the World Gold Council revealed record investment demand (1,064 tons) in the first half of 2016.
- The trend for ETFs to pile in to the precious metal sent the price of gold soaring by 25% in H1, the biggest price rise since 1980.
- And for the first time ever, investment, rather than jewelry, was the largest component of gold demand for two consecutive quarters.
- ETFs: GLD, IAU, PHYS, SGOL, UGL, DGP, GTU, UGLD, GLL, DZZ, GLDI, OUNZ, DGL, DGZ, DGLD, GYEN, GEUR, UBG, QGLDX
Wednesday, August 10, 2016
- Eldorado Gold (EGO +2.7%) is upgraded to Buy from Neutral with a $5 price target, raised from $4.40, at Goldman Sachs, which says EGO is well positioned to fund its highly prospective organic growth opportunities which should drive adjusted free cash flow improvement of 60% by year-end 2018.
- Goldman expects the stock to react favorably to updates on important organic growth projects, likely including details about development projects in Greece, which would offer clarity around EGO’s growth pipeline.
- Noting that EGO’s outlook and the gold market have improved since the company suspended its dividend in early 2016, the firm expects the company to reinstate the dividend by early 2017.
- WTI crude has slid 1.8% to $42 per barrel following an unexpected rise in oil inventories reported by the EIA this morning. The move has helped drag down the energy sector, with Exxon Mobil's 1.2% decline the worst in the Dow 30.
- The S&P 500 is lower by 0.25%, the Nasdaq by 0.4%, and the Dow by 0.15%.
- U.S. Steel (X -2.4%) opens lower after pricing its upsized 18.9M-share public offering at $23/share for gross proceeds of $434.7M; the company had announced a 17M-share offering on Monday.
- The company also grants the underwriters an option to purchase up to 2.835M additional shares before the offering closes on or about Aug. 15.
- Shares have dropped nearly 11% so far this week.
- Oil prices are trading lower on bearish news from the American Petroleum Institute, which reported a large surprise build of 2M barrels in crude stocks.
- Analysts are also voicing skepticism about a meeting of oil producers, saying it's unlikely to result in a significant market tightening.
- On tap: OPEC's August Oil Markets Report is due out at 7:40 a.m. ET.
- Crude futures -1.4% to $42.19/bbl.
- ETFs: USO, OIL, UWTI, UCO, DWTI, SCO, BNO, DBO, DTO, USL, DNO, OLO, SZO, OLEM, OILU, OILD, OILX
Tuesday, August 9, 2016
- U.S. Steel (NYSE:X) fell 6% in today's trading following its 17M-share offering; Axiom Capital’s Gordon Johnson, who has been bearish on the stock, then piled on by saying the impact of tariffs on steel prices already is starting to fade.
- Johnson believes few realize - judging by the strength in U.S. steel stocks during recent months - that the resurgence in hot rolled coil steel imports into the U.S. began before the final U.S. action was rendered.
- Sheet/strip/bar HRC imports into the U.S. from the seven countries targeted in March 2016, when the preliminary decision was rendered, totaled 275.7K metric tons, falling to 174.8K tons in April following the preliminary tariffs, rebounding to 292.4K tons in May and exiting July at 311.6K tons, significantly above pre-preliminary levels.
- Other steel and iron ore producers also fell today: AKS -6.4%, NUE -1.3%, STLD -1.4%, CLF -4.5%, MT -0.7%.
- Maersk Line (OTCPK:AMKAF, OTCPK:AMKBF) says it will stop services to and from 10 ports in China and instead focus on ports that offer the best growth prospects, as part of an attempt to reduce costs.
- Like other container shipping companies, Maersk has been hurt by historically low freight rates in H1 of this year because of slower global growth and many new, larger vessels being added to the market.
- The A.P. Moller-Maersk conglomerate will publish Q2 results on Friday, and the consensus forecast is for Maersk Line to post a loss of $67M.
- Cliffs Natural Resources (NYSE:CLF) -1.8% AH after announcing a public offering of of $300M common shares, or as much as $345M if the underwriters exercise their option to purchase additional shares.
- CLF says it plans to use the proceeds for general corporate purposes, including the repayment of debt, in particular its senior notes due January 2018.
- Hecla Mining (HL +3.2%) moves to a 52-week high after J.P. Morgan upgrades shares to Overweight from Neutral with an $8 price target, saying the company boasts "high quality assets in increasingly attractive locations."
- FBR Capital reiterates a Market Perform rating on HL and raises its price target to $6 from $5, saying the company is strong operationally but fairly priced.
- Last week, HL reported better than expected Q2 earnings and revenues, with silver production up 71% Y/Y at 4.2M oz. and gold production up 41% at nearly 63K oz.
- Gold Standard Ventures (GSV +30.8%) shoots higher after reporting assay results from the first three step out core holes at the recently discovered North Dark Star oxide gold deposit on its Railroad-Pinion Project in Nevada's Carlin Trend.
- GSV says the results significantly increase the size of the North Dark Star deposit while also enhancing its prospective grade and establishing the orientation of a favorable trend supporting the potential for further expansion of the higher grade zone.
- GSV says North Dark Star is continuing to exceed expectations and is becoming a major Nevada gold discovery.
- Vale (VALE +0.9%) is upgraded to Equal Weight from Underweight with a $6.20 price target, raised from $4.80, at Morgan Stanley, which says while iron ore prices remain a major concern, the company’s divestitures have relieved pressure from its balance sheet.
- The firm believes that the closing financing for the Nacala project and the potential sale of the fertilizer business should provide more than enough capital to cover Vale’s free cash flow gap in 2016, and a potential large cash transaction in Vale’s iron ore business could "put an end to balance sheet concerns."
- Vale reportedly is in late-stage discussions with Mosaic to sell its fertilizer units, which Stanley values at $2.7B-$3.4B.
- BHP Billiton (BHP -1.1%) and Rio Tinto (RIO -1.2%) are attacking proposals for a new Australian mining tax as damaging and unfair because such a levy would specifically target the two miners.
- "Miners in Western Australia are operating in an international market and we have to be able to compete or will lose market share," BHP says, adding that it had paid $65B in taxes and royalties in Australia and the West Australia state over the past 10 years and had invested more than $25B into the Pilbara over the last decade.
- Rio says it also has been one of Australia's largest corporate taxpayers and has paid nearly $11B in royalties to the Western Australian government since 2010 on top of $52B spent on local goods and services over the same period.
- Franco-Nevada (FNV +2.5%) pushes higher after reporting better than expected Q2 earnings and hitting new records for revenues and gold-equivalent ounce production.
- FNV says Q2 revenue rose 38% Y/Y to $151M, resulting in adjusted EBITDA to rise 45% to $119M, as gold equiv. production rose 36% to nearly 113K oz.
- FNV says it expects to be close to the top end of previously provided guidance ranges for 2016, and is seeing renewed activity and "good news" at many of its non-producing advanced and exploration assets.
- Fundamental oil issues have not been addressed," says energy strategist Adam Longson. "Physical oil markets likely need to get worse before they get better."
- Longson and team see a possible bottom for oil at around $35, with any decline to that area putting the shorts at risk of some sort of OPEC production freeze rumor, or other bullish chatter.
- WTI crude today is marginally higher at $43.08 per barrel.
- Goldcorp (GG +2%) is initiated with an Overweight rating and $22 price target at Morgan Stanley, which says the underperformance of GG shares relative to gold mining peers has created an entry point for investors.
- The firm believes GG’s production guidance for 2016-18 appears conservative, and that although the company is mining above reserve grade, the issue seems to be overblown; also, GG is less likely to begin work on a large greenfield project or make a big acquisition since it has steady medium term production and a large resource base.
- Stanley says GG offers a better risk-reward outlook than Barrick Gold (ABX +0.2%) or Newmont Mining (NEM +0.5%), which the firm rates at Equal Weight with respective stock price targets of $20 and $41 (I, II).
- Indonesia's mines ministry has issued a letter of recommendation for Freeport McMoran (NYSE:FCX) to obtain a permit to export 1.4M metric tons of copper concentrates until Jan. 11 next year, according to a ministry official.
- FCX, whose Indonesian copper export permit expired yesterday, still cannot export its concentrates until the trade ministry issues an export permit based on the mines ministry's recommendation.
- FCX, which usually produces ~220K metric tons/day of copper ore, could face a halt in shipments from its giant Grasberg copper mine if the government does not quickly approve an extension.
- Silver Standard Resources (NASDAQ:SSRI) +3.9% premarket after saying it favorably resolved its dispute with the Canada Revenue Agency related to the tax treatment of the 2010 sale of shares of a subsidiary that owned and operated the Snowfield and Brucejack projects.
- SSRI says the CRA will issue a new notice of reassessment for 2010 and 2011, reversing the previous notice, and refund C$24.1M the company had paid to the CRA to appeal, plus accrued interest.
- SSRI says it will advise the U.S. Department of Justice to file a notice of discontinuance with the Tax Court of Canada.
Monday, August 8, 2016
- IAMGOLD (NYSE:IAG) -6.7% AH after announcing a public offering of 38.85M common shares on a bought deal basis at US$5.15 each for ~$200M in total gross proceeds, plus an underwriters option to purchase up to an additional 5.827M shares.
- IAG says it plans to use to ~$150M of the proceeds to fund a tender offer for its outstanding 6.75% senior notes, with the remainder to fund internal growth projects, including the expansion of the Sadiola mine.
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