Monday, May 4, 2015
- Syngenta (NYSE:SYT) fell 7.6% in today's trade, giving up some but not all of its 16% gain on Friday that was sparked by talk that Monsanto (NYSE:MON) had approached the company about a takeover.
- The biggest concern for regulatory approval may involve what would be an unprecedented market share in soybeans and corn seeds for the combined company, and analysts say SYT’s operations in those areas would appeal to a range of buyers including Dow Chemical (NYSE:DOW), DuPont (NYSE:DD), BASF (OTCQX:BASFY, OTCPK:BFFAF) and Bayer (OTCPK:BAYZF, OTCPK:BAYRY).
- Colin Isaac of Atlantic Equities says the deal he always expected to happen is a DuPont purchase of Dow's agriculture unit; CEO Andrew Liveris has suggested Dow is open to divesting the unit, and MON's becoming a much stronger competitor after an SYT takeover could be a catalyst for Dow to more seriously consider exiting the business, which Issac says would be prime pickings for DuPont and its Pioneer seed business.
- A $19.5B bid by DuPont for Dow’s ag sciences business could generate a 7% return on invested capital, according to a report by Laurence Alexander at Jefferies, while adding that such a move is less likely until agricultural markets improve from current trough levels.
- Standard & Poor's reduces its outlook on BHP Billiton’s (BHP +0.1%) credit rating to negative as it forecasts weaker cash flows.
- S&P says continued weakness in commodity prices, combined with BHP’s commitment to a progressive dividend payment, may weaken key financial metrics to below its expectations for an A+ rating without offsetting measures.
- S&P maintains its stable outlook on Rio Tinto (RIO -0.4%), which had been placed on watch for a possible negative ratings action along with BHP and six other iron ore producers.
- Oil production across the Midwest peaked at nearly 10M barrels per day in February, says hedge funder Andrew Hall, and has been falling since. "We have now reached a turning point," says the oil trading legend, and the cutback in supply has "rendered all the doomsday [oil price] forecasts self-defeating."
- Oil has bounced nearly 40% in the past six weeks, and the rally should continue, says Hall, as it will be harder for producers to ramp production back up than it was to cut back.
- Hall's Astenbeck funds were up more than 10% YTD, say sources, and gained 10% last year - no mean feat for an oil bull given the drastic decline in prices.
- EIA data - which led to the agency's prediction of a decline in U.S. output not starting until April - is "essentially an artifice," says Hall, noting it's based on estimates from state agencies that lag by months. A better gauge of output, he says, is an adjustment the agency uses adding up changes to how much oil is in storage, how much was used by refineries, and how much was imported and exported.
- Flirting with $60 per barrel earlier, black gold is down 0.5% to $58.83.
- Source: Bloomberg
- ETFs: USO, OIL, UCO, UWTI, SCO, BNO, DBO, DWTI, DTO, UGA, USL, DNO, UHN, OLO, SZO, TWTI, OLEM
- Olympic Steel (ZEUS +13.1%) extends Friday's big gains following a strong Q1 earnings beat, as shares are upgraded to Outperform from Underperform with a $17 price target, raised from $12, at Credit Suisse.
- ZEUS is favorably leveraged to both an anticipated reduction in U.S. import volumes and an improvement in U.S. steel prices, Credit Suisse says; even if the steel price recovery is a muted one, the firm believes a reduction in import volumes is enough to drive the stock higher.
- Shares are up more than 40% since Friday, when ZEUS surprised by reporting Q1 earnings of $0.10/share, easily topping an expected loss.
- Hudbay Minerals (HBM -1.6%) says 180 unionized workers are on strike at its Manitoba operations, representing ~12% of its workforce in the province, adding that it has a contingency plans in place and expects operations to continue.
- HBM has four producing mines in Manitoba, including the Snow Lake project it bought last month, plus processing facilities.
- Reports say it is the first time the Manitoba mine workers have gone on strike in 40 years.
- Sibanye Gold (SBGL -9.8%) sinks in early trading after reporting a sharp spike in costs during Q1 amid lower production, but it maintains its FY 2015 production target.
- SBGL’s Q1 cash costs in rands rose to 385K from 289K, with all-in sustaining costs of 473K from 365K in the year-ago quarter.
- Q1 production fell 5.1% Y/Y and 30% Q/Q to 9,808 kg (315.3K oz.), with a fire and conveyor failure at the Kloof mine, electricity shortages from state-owned supplier Eskom and a series of processing problems hurting the quarter that is traditionally slow because of the ramp-up from year-end holidays.
- SBGL keeps its forecast for full-year production unchanged at 50K-52K kg.
- Dow Chemical (NYSE:DOW) says it plans to cut 1,500-1,750 jobs, or as much as 3% of its global workforce, as part of a restructuring aimed at reducing costs by $1B over three years.
- Dow says it will record charges of $330M-$380M in Q2 related to the restructuring.
- Dow says the moves will streamline its organization following the announced plan to separate its chlorine business.
- DOW +0.5% premarket.
- BHP Billiton's (NYSE:BHP) shareholders are expected to approve the biggest ever spin-off in the mining industry on Wednesday, looking to squeeze more value out of a series of long-neglected aluminum and nickel assets.
- The new company, South32, risks a tough May 18 debut on the Australian bourse, with investors nervous about weak commodity prices, short mine life spans and declining ore grades.
- As a result of the uncertainty, analyst valuations vary widely. Morgan Stanley is predicting it may start with a market cap worth A$8.5B ($6.7B) and Investec around $12B.
- Previously: BHP outlines plan to spin off South32 (Mar. 16 2015)
Friday, May 1, 2015
- Wolfe Research analyst Gordon Johnson says he remains negative on Cliffs Natural Resources (NYSE:CLF), underpinned by his views on structural iron ore excesses, but at least he came away from a meeting with CEO Lourenco Goncalves with "a better appreciation for the bull case."
- Johnson says the CEO admitted the opportunity to sell iron ore pellets to U.S. mini-mills is small now at ~500K tons over the next 12 months, but CLF sees big potential for what would be an entirely new market for the company; CLF pegs the longer-term potential at 5M-10M tons, and says its existing capacity is sufficient to meet an incremental 500K tons.
- Both the analyst and the company suspect CLF's stock price rise yesterday was a result of misunderstanding Vale's (NYSE:VALE) comments from its earnings conference call; Vale is not likely to consider a cut to its planned ramp to 450M metric tons/year until iron ore prices move statically below $41/ton.
- U.S. steelmakers Nucor (NUE +0.3%) and SSAB Enterprises complain that Chinese producers are circumventing import duties on steel plate and are asking the Commerce Department to intervene.
- The companies say Chinese producers were getting around anti-dumping duties on cut-to-length carbon steel plate by adding elements to class the plate as alloy, and seek a ruling that all steel plate marketed, priced and sold in the U.S. as commodity carbon steel plate is within the scope of anti-dumping duties.
- The U.S. drilling rig count fell another 27 units in the past week to 905, according to Baker Hughes' (NYSE:BHI) latest survey, and has now plunged by more than 1,000 rigs over 21 weeks since early December.
- The oil rig count fell by 24 to 679, its lowest point since October 2010, while gas rigs fell three units to 222.
- The entire decline was in land rigs, which now total 868 from 1,786 a year ago.
- ETFs: USO, OIL, UCO, UWTI, SCO, BNO, DBO, DWTI, DTO, USL, DNO, OLO, SZO, TWTI, OLEM
- Barrick Gold (ABX -1%) has hired Catherine Raw, a BlackRock (NYSE:BLK) executive and co-manager of one of its largest mining funds, as head of business performance.
- Raw has been highly critical of the performance and strategy of most of the world’s largest gold miners, saying in December that the sector needed “to start seeing some really painful decisions being made."
- ABX says Raw's experience gives her an intimate knowledge of the global mining investment universe, and she will seek greater rigor in financial analysis, planning and performance management across the company.
- Turquoise Hill Resources (TRQ +0.6%) says a deal that would have allowed it to unload its remaining stake in Mongolian coal miner SouthGobi Resources has fallen through.
- TRQ, a unit of Rio Tinto (NYSE:RIO), says it cannot complete the transaction with Hong Kong-listed National United Resources for 56M SouthGobi shares under the terms of the agreement.
- The deal's failure marks another setback in TRQ's effort to sever ties with SouthGobi, a company that has been hurt by a slowing Chinese economy, weaker coal prices, accounting problems and funding woes.
- Rio Tinto (RIO +1.3%) is prepared to look for an acquisition - its first since 2012 - if it can secure the right asset at the correct valuation and win investor backing, Morgan Stanley says after an analysts’ meeting this week with CFO Chris Lynch.
- As asset valuations get pushed lower, larger producers may be changing their attitude toward deals, according to Argo Investments; after Rio has moved to reduce its project budget to the lowest since 2010, cut spending and complete a $2B share buyback, investors may be more likely to accept acquisitions, the firm adds.
- Still, with lower prices forecast for many key commodities in oversupply and slowing demand in China, asset sales or de-mergers are more likely than acquisitions, Goldman Sachs believes.
- Antitrust issues regarding a potential Monsanto (NYSE:MON) and Syngenta (NYSE:SYT) combination would "not be insurmountable," Deutsche Bank analysts say, following reports late yesterday that MON again has approached SYT about a takeover.
- Although MON is no. 1 globally in seeds and SYN is no. 3, SYT’s market share is relatively small at 8% vs. MON's 25%, the firm says; SYT's seeds business is perceived as the weak spot after recent problems in its U.S. corn business, the firm says, so the market would not see a problem if some of SYT’s seeds assets had to be divested as a prerequisite for a deal.
- SYT +16%, MON +3.6% premarket.
Thursday, April 30, 2015
- Syngenta (NYSE:SYT) +12.6% AH after Bloomberg reports it has been approached by Monsanto (NYSE:MON) about a possible takeover.
- Combined with SYT, MON would become the largest player in the world for both seeds and crop chemicals and a formidable competitor to Bayer (OTCPK:BAYZF, OTCPK:BAYRY), BASF (OTCQX:BASFY, OTCPK:BFFAF) and Dow Chemical (NYSE:DOW).
- Reports last year had said the companies held preliminary talks with advisers about a combination before SYT management decided against negotiations.
- Vale (NYSE:VALE) says it is delaying the timeline of a possible IPO of its base metals division after an expected rebound in nickel prices failed to materialize.
- Vale had said in December it was considering selling 30%-40% of the division around August, but CEO Murilo Ferreira now says the new goal is to be ready to present a recommendation to Vale’s board by the end of this year for possible action in 2016.
- Vale execs had been expecting nickel prices to rise to ~$21K/metric ton but the company instead sold its nickel for an average $14,279 in Q1, citing a slowdown in Chinese housing construction and bearish sentiment regarding Chinese economic growth.
- Earlier: Vale posts third straight quarterly loss but may cut iron ore output
- DuPont (DD -1.5%) settles a long-running trade secrets case against South Korea-based Kolon Industries involving fiber used to make Kevlar bulletproof vests, with the South Korean company agreeing to pay DuPont $275M in restitution.
- The amount is far smaller than the $920M in damages that a U.S. District Court awarded DD in 2011 before a federal appeals court overturned the ruling in 2014.
- DuPont had accused Kolon of the theft of 149 of its trade secrets relating to the Kevlar fiber used to make body armor, fiber-optic cables and tires.
- Kolon also pleaded guilty to a federal charge of conspiracy to convert trade secrets and will pay an $85M penalty.
- Vale (VALE -0.9%) is lower after posting a Q1 loss - its third straight quarterly loss, and a wider loss than in Q3 and Q4 - under pressure from falling iron ore prices.
- As well as weaker iron ore prices, Vale says the depreciation of the Brazilian real against the dollar had cost it $3B in the quarter.
- But shares are well off earlier lows after Vale's Head of Ferrous Peter Poppinga told investors during a conference call that the company may cut its iron ore production forecast by up to 30M metric tons over the next two years.
- Poppinga says Vale could replace some old higher-cost iron ore production as new capacity comes on stream: "If the market demands, we are prepared to reduce production from the south and southeast system," he said, referring to the company's Minas Gerais mines.
- The exec said Vale's iron ore production forecast for 2015 would remain at 340M metric tones, but he did not specify whether adjustments could be made to the forecast for next year and beyond.
- Goldcorp (GG -6.8%) sinks to lows of the day after Q1 earnings fell far short of analyst expectations, as lower gold prices and higher cash costs outweighed increased gold production.
- GG says its Q1 average realized gold price fell to $1,217/oz. from $1,297 a year earlier; cash costs also were higher, with all-in sustaining costs rising 5% to $885/oz.
- Q1 gold production rose to 724.8K oz. from 679.9K oz. in the year-ago quarter, while silver production fell to 8.5M oz. from 9.6M.
- For the full year, GG reaffirms its guidance for production of 3.3M-3.6M oz., driven primarily by new contributions from Cerro Negro and Éléonore, at costs of $875-$950/oz.; the miner also backed guidance for capital spending of $1.2B-$1.4B for the year.
- However, the company raises its tax guidance, now expecting an annual effective tax rate of 45% in 2015 on adjusted net earnings, with a 39% effective tax rate for each of the year's final three quarters.
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