Wednesday, April 23, 2014
- Dow Chemical's (DOW) Andrew Liveris has met activist investor Daniel Loeb several times to discuss the shareholder's call for a breakup of the company, the CEO says in today's earnings call.
- Liveris said Dow had learned lessons from Loeb’s criticism, such as the need to be more transparent about its business, but still rejected his call for a breakup, saying he lacked the management’s “sheer weight of knowledge” about how the company earns its profits.
- The CEO also confirmed Dow is committed to a more active sale program than it proposed last year, and now plans to sell businesses worth $4.5B-$6B by the end of next year, including ~$800M of sales already announced.
- Yamana Gold (AUY -0.6%) and Agnico Eagle (AEM +2%) are "clear winners" for acquiring Osisko Mining (OSKFF) because it is crucial for gold miners to secure low-risk production at this stage in the cycle, National Bank analyst Steve Parsons says.
- It is increasingly difficult to find large gold deposits in mining friendly jurisdictions - such as Osisko's Canadian Malartic mine in Quebec - and companies need to look at obtaining those assets now or face declining production profiles in the future, Parsons says, adding that now is a good time for mid-tier miners to do business with senior producers who are busy cleaning up their balance sheets.
- For AUY, Parsons says the addition of a low-cost, cornerstone asset should help the stock get re-rated towards its higher-multiple peers; for AEM, the deal is accretive on all metrics and adds another cornerstone asset to its already concentrated portfolio.
- Agnico Eagle Mines (AEM +1.9%) is upgraded to Outperform from Sector Perform with a $43 price target at RBC Capital following the combined bid with Yamana for Osisko, which is expected to succeed as Goldcorp's (GG) final offer has now expired.
- The firm views the overall transaction as positive and accretive to EPS and cash flow/share, and sees recent share price weakness as creating an attractive entry point.
- Dow Chemical (DOW) +2.3% premarket after Q1 earnings rose 65% Y/Y, beating estimates, on a slight revenue rise and a boost from lower costs.
- DOW says adjusted EBITDA margin expanded more than 60 bps Y/Y to 16.6%, with increases in all operating segments except feedstocks and energy; margins grew despite a $300M-plus increase in purchased feedstocks and energy, due to continued emphasis on productivity and cost-control actions.
- Sales in DOW's performance plastics segment gained 3%, largely due to price increases; excluding the impact of divestitures, the growth was 6%.
- R&D expenses fell 10%.
- Air Products & Chemicals (APD) reports a 2.4% drop in FQ2 earnings, and lowers its earnings outlook for FQ3.
- APD now sees FQ3 EPS of $1.42-$1.47 vs. $1.50 analyst consensus estimate, and lowers the top end of its FY 2014 EPS guidance to $5.70-$5.85 from prior guidance of $5.70-$5.90 vs. $5.78 consensus.
- Sales rose 3.9% Y/Y to $2.58B while product costs rose 5.7%: sales in APD's merchant gases segment rose 3.7% to $1.04B, the tonnage gases segment - which provides gases to refineries and steelmaking industries - reported 3.9% higher revenue, and electronics and performance materials gained 7.8%.
- Newcrest Mining (NCMGF, NCMGY) says it has cut hundreds of jobs in Papua New Guinea, mostly at its expensive Lihir mine.
- CEO Greg Robinson says Lihir will be a focus for further cash savings and productivity improvements; Newcrest blamed much of its 11% drop in the prior quarter's gold production on maintenance work at sites including Lihir.
- Separately, Newcrest confirms Robinson will be replaced by COO Sandeep Biswas in early July.
Tuesday, April 22, 2014
- Allied Nevada Gold (ANV) +4.7% AH after announcing Hycroft mill expansion pre-feasibility study results, including 26.5% internal rate of return and $1.7B net present value.
- Average annual production for the first five years of full production (2018-22) to total ~450K oz. of gold and 21M oz. of silver, or ~800K gold equivalent oz.
- Average adjusted cash costs per oz. for the first five years of full production at $478/year, with a mining and processing life of 20 years.
- It's easy to blame the winter weather for any earnings disappointments this quarter, but don’t buy it when Cliffs Natural Resources (CLF) uses the excuse when it reports April 24, Wells Fargo analysts say.
- The firm expects CLF to report soft Q1 results and guidance due to declining iron ore prices and, yes, the weather; but Wells is bearish, as the long-term bias to pricing remains negative.
- Investors likely will focus on restructuring efforts, particularly progress in either selling or finding a partner for high cost Canadian operations, not an easy feat in a downturn; CLF also is evaluating an MLP structure for its U.S. operations, but the firm does not view an MLP conversion as a de-leveraging event.
- Peter Munk, stepping down next week as chairman of Barrick Gold (ABX +1.7%), hails the potential benefits of a merger with Newmont Mining (NEM -0.4%), saying investors should welcome the cost cuts and lower political risk that a combination could deliver.
- Munk tells FT there are “obviously synergies available” from a potential combination of ABX and NEM, pointing out that the two companies had many assets “cheek by jowl” in Nevada, the top U.S. gold producing state.
- Such comments could be an indication the companies are keeping open the possibility of resuming high-level negotiations, although talks would be unlikely to happen before NEM's annual general meeting Wednesday or ABX's annual meeting next week.
- Deutsche Bank analysts wonder if the merger report was “a trial balloon... a matter of posturing to allow market participants an opportunity to opine and stock prices time to reflect a merger scenario."
- Celanese (CE +4.8%) opens higher after reporting Q1 earnings rose 38% Y/Y and easily beat analyst expectations, driven by improved margins across all businesses and continued productivity.
- Says strong execution on productivity initiatives drove segment income margins to 17.7% for the quarter, vs. 16.8% in the year-ago quarter and 15.1% in the prior quarter.
- Raises its 2014 earnings outlook, seeing 12%-14% EPS growth to $5.04-$5.13 vs. $4.96 analyst consensus; in January, CE had said company-specific initiatives along with some improvement in base business should result in earnings growth consistent with 2013.
- AK Steel (AKS -3.4%) reports a wider Q1 loss on higher production costs due to an unplanned outage of the Ashland Works blast furnace and high energy costs caused by extremely cold winter weather.
- Shipments fell 2.1% Y/Y to 1.26M tons, reflecting lower shipments of electrical steel and of carbon steel to the spot market, partially offset by higher automotive shipments; however, average selling prices rose 3% to $1,096/ton, primarily due to a richer shipment mix of value-added products.
- Ashland (ASH) says Chairman/CEO James O'Brien will retire at the end of this year, as part of the company's ongoing succession plan; ASH's board has launched a formal search process to choose his successor.
- O'Brien, who was CEO since 2002, will remain on its board for a limited time once the new CEO is named to help facilitate a smooth transition.
- Gold and silver equities now appear more fairly valued, Goldman Sachs says, raising its sector coverage view to Neutral as it sees more responsible capital allocation, successful cost cutting initiatives, a refocus on maximizing free cash flow, and sound strategic portfolio optimization improving the positioning of select companies and offsetting its below-consensus outlook for commodity prices ($1,200/oz. gold from 2015 forward).
- The firm upgrades Barrick Gold (ABX) to Buy, believing the company's financial flexibility has significantly improved; ABX +1.8% premarket.
- B2Gold (BTG) is initiated with a Buy rating and C$4.20 price target, as Goldman cites imminent production growth from the Otjikoto project which enhances BTG’s free cash flow generation and should fund future development.
- Started at Neutral: AGI, FNV, BVN,.
- Maintained at Buy: GG, AUY, SLV.
- Sell: IAG, EGO, PAAS.
- ETFs: GDX, GDXJ, NUGT, DUST, SIL, GLDX, JNUG, SLVP, RING, SILJ, JDST, GGGG, PSAU
Monday, April 21, 2014
- CF Industries (CF) says it has shut down its entire nitrogen complex at Woodward, Okla., due to a problem in one of the boilers.
- CF says it will take 6-8 weeks to return the plant to normal operations; during that time, the plant will carry out maintenance that had been scheduled for June.
- Woodward has average annual production capacity for 480K tons of gross ammonia, 820K tons of UAN, and 25K tons of urea liquor.
- The U.S. Commerce Department rules that imported steel rebar from Mexico and Turkey unfairly undercuts U.S. prices; companies in Mexico and Turkey will be subject to duties ranging from 2% to 66%.
- Nucor (NUE), Commercial Metals (CMC) and other U.S. steel producers alleged that Mexican and Turkish competitors were undercutting their prices, as rebar imports from the two countries have nearly doubled from 2011 to 2013.
- The bond market is rooting for a merger of Newmont Mining (NEM) and Barrick Gold (ABX), sending bond prices higher amid reports the companies have recently explored a merger, which could help shore up their finances while gold prices are down.
- NEM debt maturing in 2042 was the second-most-traded U.S. corporate bond today, with ~$65M of bonds changing hands, trading with a yield of ~5.90% vs. ~6.15% earlier this month; ABX debt maturing in 2043 was yielding 5.64%, down from ~5.80% earlier in the month.
- Bonds from investment-grade metals and mining companies have performed well YTD, returning 4.51% vs. 3.59% for investment-grade companies overall.
- Anglo American (AAUKF, AAUKY) is preparing to exit its Rustenburg platinum mines in South Africa, FT reports, in what would be one of the miner’s most decisive moves since Mark Cutifani became CEO last year.
- South Africa’s platinum sector has been crippled for nearly three months by a strike at mines owned by Anglo and others, and the volatile labor environment is one reason for Anglo’s reluctance to invest more in its heavily staffed mines at Rustenburg.
- The Rustenburg mines last year produced ~20% of Anglo’s output of platinum and associated metals before two of the five mines were closed; Anglo American subsidiary Amplats (AGPPY, AGPPF) is the world’s largest platinum miner.
- Casablanca Capital is asking Cliff Natural Resources (CLF -1.2%) to hold the company's annual shareholders meeting by June 4, saying CLF's delays in "providing a meaningful voice to shareholders are unacceptable."
- The 5.2% owner of CLF shares says it would commence a consent solicitation to call a special shareholder meeting for the election of the company's board.
- CLF's Chairman, James Kirsch, "has never invested a dollar of his own money, but continues to stymie investors’ legitimate efforts to restore value at the company," Casablanca says.
- Newmont Mining (NEM +6%) shares are on the move because of a deal that isn't happening - at least not yet; WSJ reported Friday that NEM was in advanced merger talks with rival Barrick Gold (ABX -3.5%) that had broken down.
- J.P. Morgan hopes a deal happens: With overlaps in Australia and Peru plus bigger buying power helping to drive down costs, it thinks the combined entity could claim as much as $3B in savings, improve free cash flows and better service combined debt.
- However, Cowen analysts see little benefit for ABX shareholders in such a merger: construction of Donlin, Goldrush, and the completion of Pascua Lama during 2016-19 would require additional balance sheet size, which could be the underlying motivation for a merger, but as with past mergers between the largest gold producers, it does not believe that being the biggest creates significant value for the shareholder.
- Goldcorp (GG +0.8%) officially gives up its bid for Osisko Mining (OSKFF -0.1%), saying it will not raise its offer to acquire the company; its most recent C$3.6B offer will expire tomorrow night before midnight.
- Yamana Gold (AUY -3.5%) and Agnico Eagle Mines (AEM -3.7%) joined forces last week for a C$3.9B offer to acquire Osisko.