Monday, March 10, 2014
- DuPont (DD) -1% AH after saying in an 8-K filing that Q1 sales and earnings will be “challenged” by the unusually cold North American winter and disruptions in Ukraine.
- However, DD maintains its FY 2014 forecast for operating EPS of $4.20-$4.45, citing an improvement in global industrial production and lower agriculture input costs; consensus analyst estimate is $4.43.
- Shares of Cliffs Natural Resources (CLF -4.2%) can't withstand today's news of plunging spot iron ore prices prompted by weak Chinese export data; adding insult to injury, Axiom Capital initiates coverage of CLF with a Sell rating, saying the iron ore and coal miner is "living on a prayer."
- The firm thinks CLF likely will blow through its debt covenants in 2014, further cut its dividend, and likely need to do a very large dilutive equity deal - with "acute liquidity risk" if the company is not able to execute these options; $114 iron ore suggests bankruptcy is a growing reality.
- It didn’t have to be this way, the analysts lament; CLF once had a steady business selling iron to non-coastal companies, but it wanted to get in on the China play, so it purchased other mines - now it’s paying for it.
- Barrick Gold (ABX -1%) says it will place ~41M shares of its African Barrick Gold (ABGLF) subsidiary with institutional investors, representing ~10% of African Barrick shares and ~13.5% of the parent's holdings in the company.
- ABX says the offering will be made through an accelerated book-build offering process to be launched immediately; the offering has yet to be priced.
- ABX, which like many large miners bought pricey assets at the top of the commodity cycle, has been shedding non-core assets and cutting costs.
- ArcelorMittal (MT -2.2%) CEO Lakshmi Mittal says the political crisis in Ukraine has caused domestic steel demand to drop because people weren't investing, though costs have fallen because the local currency has weakened against the dollar.
- Steel sales to customers in Ukraine from MT's Kryvyi Riy steel plant will but cut in half as a result of the crisis, Mittal says, adding that the material is being diverted to different markets.
- The Kryvyi Riy plant, one of Ukraine's largest, produced 6.4M metric tons of crude steel in 2013.
- World corn stocks of 158.47MMT is higher than last month's estimate of 157.3 and trade expectations of 156.27. Domestic ending stocks, however, are now placed at 1.456B bushels vs. 1.481 last month and trade expectations of 1.488.
- Domestic bean ending stocks of 145M bushels is down from 150 last month, but ahead of trade expectations for 141. World stocks of 70.64MMT vs. 73.01 previously and forecasts for 71.46.
- Domestic wheat ending stocks of 558M bushels compares to 558M last month and 570M forecast.
- Markets are reading the news as bearish, with corn off a nickel, beans down $0.25, and wheat off $0.02
- CORN -0.25%, SOYB -0.75%, WEAT -1.2%
- Related ETFs: JJG, GRU, WEET
- Archer Daniels Midland (ADM +1.9%) is upgraded to Outperform from Market Perform with a $50 price target at BMO, which believes ADM is in the early stages of a strategic "transformation" that should create earnings upside in H2 2014 and into 2015.
- The firm sees "uncanny" potential parallels between ADM and Tyson Foods: ADM has just exited a trough earnings period with EPS of $2.50-plus despite unprecedented challenges; has relatively new management that appears in a position to offer financial growth targets; should benefit from improving fundamentals; should begin to realize benefits from recent capex projects and cost savings efforts; and should deploy cash toward shareholder friendly options.
- Amcol International (ACO -2.1%) finally agrees to be acquired by Minerals Technologies (MTX +4.1%) for ~$1.7B after Imerys (IMYSF) failed to match MTX's sweetened bid of $45.75/share.
- MTX is the last man standing in the bidding warfor ACO, which lured six increased offers in just three weeks and has been the most active U.S. takeover target valued at $1B-plus so far this year.
- US Steel (X) is upgraded to Buy from Neutral with a $32 price target, up from $27, at Nomura on free cash flow potential.
- Nomura says it sees many reasons to own X after the stock's 18% correction since January; after meeting with the CEO and CFO last week, the firm has increased conviction in the company’s direction as well as the opportunity sets in the commercial, financial and operating functions of the business, and sees cash flow significantly increasing in the coming years.
- Shares -0.5% premarket.
- Mining shares, highly sensitive to Chinese demand, are weak in premarket trade after Chinese exports last month slumped 18% from a year ago, in contrast to the 5% increase that was expected by economists.
- Although the sharp drop raised concerns over Asia's largest economy, distortions due to the long Lunar New Year holidays could have contributed to the surprise fall.
- CLF -2.1%, BHP -1.9%, RIO -1.9%, FCX -1.3%, AA -1.3% premarket.
- Fruit distributor Chiquita Brands (CQB) has agreed to acquire Irish peer Fyffes (FYFFF) for $526M in an all-stock deal that will create the world's largest banana supplier.
- Chiquita shareholders will own 50.7% of the combined company, to be called ChiquitaFyffes, while Fyffes shareholders will receive the rest.
- The merged entity would have annual revenues of $4.6B.
- The transaction will help Chiquita lower its tax revenue, as the combined firm will be domiciled in Ireland.
- However, the deal could spark antitrust fears, as four multinationals - including Chiquita and Fyffes - control 80% of the world's banana market. (PR)
Friday, March 7, 2014
- Canada's government takes the unusual step of introducing tough new railway regulations aimed at easing a grain bottleneck that has sent the price of oat future contracts soaring to record highs.
- The government will require Canadian National (CNI -0.5%) and Canadian Pacific (CP -1.5%) railways to ship at least 500K metric tons of grains, equivalent to about 5,500 railcars, each week; if they fail to meet the targets, they will be charged C$100K for each day they aren't in compliance.
- The two railways are each currently moving ~2,500 cars/week of grain, a rate that is set to rise by ~500 cars/week until the government's quota has been met.
- The legislation comes as a record grain crop remains stuck in grain elevators across western Canada amid rail-shipping delays resulting from several issues, including harsh weather conditions.
- Copper futures slumped to their biggest loss in more than two years as investors worried about slowing growth in China, which accounts for 40% of the world's copper demand.
- Traders were spooked by China's first default on a bond traded in the mainland, which comes amid broader fears about the impact of China's economic slowdown on demand for industrial metals.
- Copper prices have lost 9.2% YTD as signs of faltering growth in China have raised the outlook for a surplus.
- Top publicly traded producer Freeport McMoRan (FCX) -4.8%.
- ETFs: JJC, CPER, CUPM
- A disruption of natural gas supplies to Europe by an escalation of Russia’s military action in Ukraine may boost LNG demand and prices in Asia and South America, analysts say.
- Russia, which provides Europe with a quarter of its natural gas mainly though Ukraine, has cut supplies twice since 2006; while the current crisis hasn’t interrupted exports, LNG prices will “move through the roof” if flows transiting Ukraine are stopped, Societe Generale says.
- Any potential supply curbs could cause traders to stop selling LNG cargoes out of storage and instead hold them for domestic use, triggering competition for the fuel in South America and Asia.
- ETFs: UNG, DGAZ, UGAZ, BOIL, GAZ, KOLD, UNL, NAGS, DCNG
- A check of asset markets following what's currently being interpreted as a strong nonfarm payroll report (175K jobs added vs. 154K expected; UE rate up to 6.7%): Flat ahead of the number, stock index futures are up by 0.5%; gold is down 1.1%, silver down 3.2%, copper off 2.9%; the dollar is up a bit, but mostly against the loonie after a weak jobs number in Canada.
- DIA +0.5%, GLD -1%, SLV -2.9%, JJC -3%, UUP +0.15%
- Previously: Treasury yields fly higher after payroll report.
- Related ETFs: GLD, SLV, DIA, AGQ, IAU, PHYS, UUP, SIVR, USLV, ZSL, SGOL, UDN, UGL, DGP, DOG, GLL, DXD, JJC, DZZ, UDOW, UGLD, SDOW, DSLV, DDM, DGL, DBS, GLDI, DGZ, DBV, AGOL, DGLD, SLVO, FORX, TBAR, UDNT, UUPT, USV, UBG, CPER, GLDE, GYEN, CUPM, GEUR, USDU, GGBP
- Freeport McMoRan (FCX) says power rationing in the Democratic Republic of Congo will not affect its operations in the short term but a reliable energy supply would be crucial for any future expansion plans.
- The Democratic Republic of Congo, Africa’s biggest copper producer, has told miners it will institute an electricity rationing program and its state-owned power company will stop signing new contracts.
- Glencore Xstrata’s (GLCNF, GLNCY) Mutanda and Katanga mining projects and FCX's Tenke Fungurume mine are Congo’s top copper producers; Katanga is scheduled to expand production to almost 300K metric tons by year-end, and Tenke plans to add a second sulfuric acid plant by 2016.
- Cliffs Natural Resources (CLF) dismisses Casablanca Capital's move to nominate directors to the board, and says the activist investor rejected its offer to settle a proxy fight.
- CLF says it offered to allow Casablanca appoint two independent directors to the board with a third director to be appointed on mutual agreement; instead, Casablanca is nominating six directors.
- CLF is postponing its annual meeting originally scheduled for May 13; the new date will be announced at a later time.
- Casablanca is CLF's fifth-largest shareholder, with a 5.2% stake, and has been pushing for new leadership at CLF as well as a breakup of the company.
Thursday, March 6, 2014
- Turquoise Hill Resources (TRQ) +4.1% AH on speculation from the Daily Mail that Rio Tinto (RIO) is preparing to bid ~$8/share for the outstanding 49.2% of the company it doesn't already own.
- Billionaire Robert Friedland holds 3% of TRQ is said to have been against selling out to RIO until recently.
- TRQ holds 66% of the massive Oyu Tolgoi copper and gold mine, but progress on the $6B second stage of the project has been held up by RIO’s inability to strike an agreement with the Mongolian government.
- Axiall (AXLL +9.9%) is upgraded to Buy from Neutral with a $60 price target, raised from $45, at Goldman Sachs, which believes bad news is priced in the share price and earnings could double.
- AXLL shares have dropped sharply over the past year, and the firm says the current price more than reflects headwinds; lower caustic prices from new industry supply, higher natural gas costs, ethylene contract resets, arrested PVC margins, Aromatics oversupply, and operational issues are now widely known.
- Grain elevator and short-line railway operator Ceres Global (CERGF) says it received approval from U.S. and Canadian federal border agencies to link its Saskatchewan terminal to a rail line operated by Burlington Northern (BRK.A, BRK.B).
- The move will allow Ceres to begin construction on the terminal, which will be able to ship 25K bbl/day of light crude and up to 40M bushels/year of grain once it is fully operational.
- Ceres plans to ramp up shipments of light crude at the terminal to as much as 70K bbl/day within three years and install a liquefied natural gas pipeline from Saskatchewan refineries.
- One of the biggest risks to gold miners - aside from lower gold prices - has been country risk where the companies house their mines, but overall country risk is improving, according to a J.P. Morgan analysis.
- The average Fraser PPI score improved for miners in its coverage area, the firm says, as the weighted average of scores using regional NPVs at 5% discount improved 9% over the last survey.
- Newmont Mining (NEM +0.9%) enjoys a boost from Peru’s score, which rose from 42 to 48.5, and from improvements in Africa, as “investors get more comfortable with mining in less developed countries,” J.P. Morgan says.
- Barrick Gold (ABX +0.3%) also could benefit from improvement in Peru; Argentina deteriorated but could be on the verge of changing this year, which also would give Goldcorp’s (GG +0.5%) prospects a boost.
- ETFs: GDX, GDXJ, NUGT, DUST, GLDX, JNUG, RING, GGGG, JDST, PSAU